(Refiles for wider distribution)
By Shankar Ramakrishnan
NEW YORK, Jan 15 (IFR) - Allocations have long been one of
the touchier subjects in the bond business, but there was little
complaining about this week's US$46bn deal, the second-largest
ever, from AB InBev.
That marked a sharp change from Verizon's record-setting
US$49bn bond in 2013, which sparked a litany of complaints that
resulted in an SEC inquiry into the allocation process.
Many on the buyside were unhappy that almost 50% of the
Verizon bonds, which tightened 55bp-75bp from reoffer levels in
a day, were allocated to only about 10 top investors.
These investors were believed to have made more than US$2bn
in just a day - a hefty enough sum to anger second and
third-tier buyers who had been shut out of the deal.
With AB InBev offering substantially less in the way of
premium, however, there was much less upset on the buyside this
"The Verizon deal came with a much larger NIC, but that was
because Verizon was setting a precedent for this size deal," one
top fund manager told IFR.
"No one knew whether the market could absorb it."
AB InBev did not leave as much on the table for investors,
pricing its bonds 15bp-35bp inside initial talk levels, meaning
concessions ranged from negative 5bp to plus 20bp.
One investor said he had halved his orders because the bonds
did not offer enough compensation given the volatile market
Another said: "We probably got 50% of our allocation in our
area and basically dumped most of it, because we didn't think it
was going to perform in the short term."
MORE WITH LESS
Even so, there were more orders for the AB InBev deal - the
US$110bn order book was the largest ever - than Verizon, and it
went to just half the number of accounts, 600 versus 1200.
That suggests that nothing has changed since the SEC
inquiry, and that the lion's share again will have gone to the
top handful of accounts.
Nothing publicly resulted from the SEC inquiry, and bankers
confirmed that their methods remain the same today.
"A bulk of the bonds do get sold to the top-tier investors,
because they are that big and have big requirements," one senior
"It is an opaque process. But you cannot expect a banker on
the desk to start making a hundred calls to place a US$1bn bond
if he can do that in 20."
The banker said that, with shrinking syndicate desks and a
growing volume of issuance, bankers were under pressure to
quickly place billions of dollars of bonds in a day.
They were still focused on placing bonds with buy-and-hold
investors and getting the broadest distribution - but that 20%
of a deal typically still goes to roughly the top 10 players.
NO QUICK FLIP
One fund manager at a top-tier firm told IFR about the AB
InBev deal: "We expected to be treated well, and we were."
He said the same anger about the Verizon deal was unlikely
this time, in part because the AB InBev bonds widened in
secondary trade after pricing.
Most of the seven AB InBev tranches were flat to 7bp inside
re-offer levels by midday on Thursday, rebounding after first
gapping slightly wider when the deal was priced.
In addition, bankers close to the AB InBev deal said, extra
effort was put into ensuring the bond grew to US$46bn only if it
made sense in terms of pricing.
"The company was clear that it wanted a better pricing
outcome," said one banker close to the deal. "(It) was prepared
to do a smaller deal if it did not make sense."
(Reporting by Shankar Ramakrishnan; Additional reporting by
Hillary Flynn; Editing by Marc Carnegie)