SABMiller's need to finance its $12.3bn takeover of Foster's saw it issue a $7bn multi-tranche Yankee. The result defied even the most optimistic of expectations, with high demand seeing the brewer come close to refinancing its bridging loan of $8bn in one fell swoop.

SABMiller’s acquisition of Australian lager brand Foster’s was one of the most exciting corporate transactions of 2011. An A$11.5bn ($12.3bn) takeover, the deal was big, bold and well timed, cementing SABMiller’s position as a pre-eminent player in the global brewing industry. It also left the company with $12.5bn of acquisition finance, including a $8bn bridging loan with a maximum two-year maturity.

“We completed the Foster’s acquisition in December but from the moment the deal went friendly in late September, we were not only preparing for settlement of the transaction; we were also anticipating the point at which it would make sense to refinance the banking facility,” says SABMiller group treasurer David Mallac.

Tough task

Given market sentiment at the end of 2011, this was no mean feat. Investors were virtually on strike in Europe, and even in the US conditions were far from easy. SABMiller and its bankers chose to begin with a fund-raising of about $4bn, already a sizeable amount but still half of its eventual bridging requirement.

“Following discussions with our bankers, it seemed as if $4bn was a good target and that would have meant following up with one or two further deals to repay the bridge in full,” says Mr Mallac.

In light of the volatile environment, SABMiller also decided to keep its options open. Rather than focus exclusively on a single market, it considered several, specifically the sterling, euro and Yankee markets.

“We were gauging which market offered the greatest chance of success, and that also meant being ready to take advantage of good issuance windows when these were presented. As well as ensuring our internal processes were lined up, we dual-tracked documentation to give us the option of either issuing a US 144A bond or issuing a sterling or Eurobond under our EMTN [euro medium-term note] programme.” says Mr Mallac.

“In the end, it was a relatively easy choice. The Yankee market was offering an appreciable pricing advantage compared to the euro or sterling markets, and being a deeper market it gave us confidence that we could get what we were looking to raise,” he adds.

No New Year hangover

The Foster’s takeover was signed and sealed in late December and SABMiller did have a certain degree of latitude, given the two-year term on its bridging loan. Nonetheless, the group wanted to tap the Yankee market soon after the New Year.

“We targeted early January on the grounds that it was a New Year; investors had new allocations and we hoped the market would have a bit of a spring in its step,” explains Mr Mallac.

A group of 10 banks were involved in the acquisition finance and four of these were active book-runners on the Yankee deal: Bank of America-Merrill Lynch, Barclays Capital, JPMorgan and Morgan Stanley. Because of the amount SABMiller wanted to raise, the transaction was divided into four tranches, with maturities of three, five, 10 and 30 years.

“Given the quantum we were targeting, we knew we could not do it all in one tranche and we would get better terms if we divided the deal into different maturities. Moreover, by doing this we diversified the future refinancing risk and the maturities we chose fitted well with our existing debt portfolio,” says Mr Mallac.

Strong demand

There was no formal roadshow for the deal. Instead, investors were treated to an internet-based presentation, supplemented by a series of phone calls to individual investors or small groups of institutions. Response seemed positive and when New York opened on Tuesday January 10, a $4bn multi-tranche Yankee was announced. What neither the company nor its bankers foresaw was the overwhelming demand that swiftly engulfed the market.

“Investor demand just took off. It was like a tidal wave. The deal was launched just after 8am in New York and by about 11am, the order book had reached $25bn. It was phenomenal. We were quietly hoping to raise a bit more than $4bn but typically there comes a point when you have to change the pricing if you want to increase the size significantly. That wasn’t the case here. To see an order book go up to $25bn even as the terms are becoming tighter is quite remarkable,” says Mr Mallac.

Ultimately, the deal was increased to $7bn. Demand was intense for every tranche, particularly the 30-year, where $7.7bn of orders were submitted for $1.5bn of bonds.

“Seeing how the bonds performed in the secondary market, perhaps we could have tightened the terms a little on the three-year and 30-year maturities but on the day, you just don’t know what might happen if you turn the screw too much. We did end up with an issue that was substantially larger than we anticipated and significantly tighter compared to initial guidance so even though the price firmed further the day after the transaction, we were very happy with the deal. It was good for all concerned,” says Mr Mallac.

The size of the transaction also meant SABMiller managed to refinance its bridging loan virtually in one fell swoop – and within just a few weeks of the bridge being drawn. Encouragingly too, the vast majority of orders came from blue-chip institutions, such as long-only asset managers and insurers.

“Aside from being one of the world’s largest brewers, we are one of the most globally diversified; our financial performance over the years has been consistently good, we are a stable, high-quality investment grade credit, and we’re not a frequent issuer so there was some scarcity value. In the end, it was a good issuance day, we had a good story to tell and we were supported by a group of bankers that did their job very well,” says Mr Mallac.

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