INTERNATIONAL – Anheuser-Busch (AB) InBev once tagged Bud Light as “the perfect beer for whatever happens”, now has to convince investors that its long-term debt should be viewed in the same way.
The world’s largest brewer announced this week that it was issuing bonds with maturities as long as 40 years, with proceeds used in part to buy back up to $11 billion of notes due from 2021 to 2026. Effectively, AB InBev is extending its more than $100bn debt load, presumably to relieve the burden of paying higher principal payments in the next few years. In 2026 alone, it has more than $10bn of debt scheduled to mature, more than double what it owes in 2020, according to data compiled by Bloomberg.
This is a somewhat bold move for a company that’s just a month removed from a Moody’s Investors Service downgrade to the lowest investment-grade tier.
After all, analysts pinned the rating cut squarely on the fact that AB InBev’s leverage is expected to remain elevated in the near future. The brewer has already opted to reduce dividend payouts to shareholders by half, which helps its cash flow. But as far as its borrowings are concerned, it appears that company officials view kicking the proverbial can down the road as the best option.
Last year, this sort of sale might have been a struggle. If the first two weeks of 2019 are any indication, though, debt investors seem to be (to borrow another Bud Light slogan) up for whatever. Buoyed by a broad feeling of risk-taking across global markets, the Bloomberg Barclays US Corporate High-Yield Bond Index is up 3 percent already this year, and investment-grade company debt is outperforming Treasuries. It’s not quite a seller’s market but it’s certainly a better environment than a few weeks ago.
AB InBev is particularly worth watching because it’s considered one of the leveraged behemoths that could cause chaos in the corporate debt market if its rating were ever to fall below investment grade. Others include the Ford Motor Co, Campbell Soup Co and Keurig Dr Pepper Inc.
In the case of AB InBev, its liabilities soared because of its acquisition of competitor SABMiller in 2016.Bloomberg