By Karen Brettell
NEW YORK, Nov 18 InBev NV's INTB.BR purchase
of U.S. brewer Anheuser-Busch Cos Inc (BUD.N) has significantly
increased the leverage of the combined company, which may weigh
on Anheuser-Busch's debt values in the near to medium term.
InBev closed its purchase to create the world's largest
brewer in the biggest cash acquisition in history, and will be
known as Anheuser-Busch InBev as of Tuesday. For details, see
The company now has six months to make an equity rights
offering to reduce a $9.8 billion loan it took to fund the
deal. It also needs to sell assets to repay an additional $7
billion one-year loan.
"The closing starts the clock ticking on Inbev's bridge
loans," Gimme Credit analyst Craig Hutson said in a note on
"The stock has rallied over 10 percent from its low on
October 22, but it remains at very depressed levels versus
historical valuations," he added. "The rights issue is critical
to maintain ratings that are already generous considering the
pro forma credit profile."
InBev postponed the rights offering on October 14, citing
difficult market conditions. Its stock has risen to $29.19
cents on Tuesday, from a low of $26.79 on Oct. 22. The shares
had traded at over $48 in September and over $60 in late 2007.
All three major rating agencies have downgraded
Anheuser-Busch's debt rating due to the amount of debt InBev,
which is guaranteeing the brewer's debt, took on to fund the
deal. Cuts were limited, however, by an expectation the company
will be able to reduce its debt load.
Fitch Ratings last month cut Anheuser-Busch two notches to
"BBB," the second lowest investment grade, noting that the
combined company will initially have too much leverage for its
rating, but added this is expected to be only temporary.
"Ultimately, Fitch does expect InBev to raise the required
equity," Fitch said. The rating agency, which also ceased
rating Anheuser-Busch, added that it expects the combined
company's credit measures to be within its rating level by the
end of 2011.
In the meantime, Anheuser-Busch's credit spreads are likely
to continue to weaken.
The cost to insure Anheuser-Busch's debt for five years
with credit default swaps hit a record 160 basis points on
Tuesday, or $160,000 per year to insure $10 million in debt,
according to Markit Intraday.
"Hedging associated with the drawdown of bridge facilities,
combined with competing bond supply to refinance the bridge in
the coming months, will pressure Anheuser-Busch's credit
valuations," Barclays analyst William Nonneman said in a report
"In addition, concerns about InBev's ability to execute
asset sales and a rights offering could further depress
sentiment around the credit story," he said.
InBev Chief Executive Carlos Brito said in a video
interview on the company's website that the company only needs
to sell two or three of five assets he described as "prized
assets" to raise the $7 billion required to pay back the 12
month bridge loan.
In addition to breweries, Anheuser-Busch owns a packaging
business and theme parks, including SeaWorld and Busch
"The company has targeted five specific assets of which it
claims 2-3 would provide the necessary proceeds," Gimme
Credit's Hutson added. "Anheuser-Busch's entertainment assets
are believed to be part of this list."
However, "while the assets may be saleable, the market
environment will make it difficult to achieve the valuations
originally envisioned by Inbev," Hutson said.