(Adds details of final pricing, recasts)
By Shankar Ramakrishnan and Andrea Johnson
NEW YORK, Oct 2 (IFR) - Dutch brewer Heineken raised US$3.25bn from a four-part bond offering in style by establishing a new record for the lowest coupon paid by a Triple B issuer for three- and five-year bonds.
Heineken , rated Baa1/BBB+, priced the three-year part of the deal below 1%, making it the first BBB rated issuer to break that threshold.
The company was in the market to take out a EUR2.5bn (US$3.25bn) bridge loan for its acquisition of Asia Pacific Breweries. The US dollar benchmark 144A/Reg S four-parter comprised three-year, five-year, 10.5-year and 30-year bonds. The tranches had attracted a total book of over US$20bn by midday today.
The guidance was for a spread of Treasuries plus 60bp area on the three-year; five-year at plus 90bp area; 10.5-year at 120bp area; and the 30-year at plus 135bp area.
The final pricing was 5bp tighter. The US$500m three-year priced with a spread of plus 55bp and paid a coupon of 0.8%, price of 99.827 and yield of 0.859%.
The US$1.25bn five-year priced with a spread of plus 85bp, a coupon of 1.4%, a price of 99.670 and a yield of 1.469%.
The US$1bn 10.5-year came with a plus 115bp spread, a 2.75% coupon, a 99.811 price and 2.771% yield. Finally, the US$500m 30-year spread was plus 130bp with a 4% coupon, 98.251 price and 4.102% yield.
The three-year and five-year coupons were a new record for the lowest coupon paid by a Triple B rated issuer. The three-year soundly beat the previous record of 1% set by Ecolab and Walgreen Co.
With a coupon of 1.4% on the five-year, Heineken beat the previous record of 1.5% set by HJ Heinz Co in February 2012.
The EUR3.5bn acquisition was backed by the bridge loan provided by a group of six banks. The loan was arranged by Citigroup and Credit Suisse, which approached four relationship banks to join the deal.
The loan was a bridge to bond issue. The two banks featured on the bond mandate as active bookrunners along with Barclays and JP Morgan, while BNP Paribas and SG were the passive books.
Heineken said that in addition to the bridge loan, it was funding the takeover through around EUR1bn of available cash sheet and its existing EUR2bn committed undrawn revolving credit facility. The company said that average acquisition financing costs are expected to be below 3%.
Last Friday, Heineken won full control of Asia Pacific Breweries, the maker of Tiger beer, after Fraser & Neave shareholders voted to sell their stake in APB to the Dutch brewer.
The deal is subject to regulatory approvals and is expected to close in November.
The APB acquisition is yet another example of the US investment grade bond market being utilized to fund large acquisitions. The year has not seen as many M&A deals as was expected early in the year, but the ones that have been announced have found their way into the investment grade bond markets because of low funding costs.
Bankers are expecting still more M&A to be funded by the investment grade bond markets going forward, with investment liquidity still supportive of quality acquisitions that would add to a company's bottom line without also adding too much leverage.
S&P affirmed its Triple B/ A2 long- and short-term corporate credit ratings on Heineken and also removed the ratings from CreditWatch, where it had placed them with negative implications on July 25. The outlook is now stable.
A Bank of America Merrill Lynch research report on Tuesday said it was reiterating its buy call on Heineken after the APB deal.
"We estimate 5.5% and 7% EPS accretion in year one and two respectively, based upon a 2.5% cost of debt and 20% EBIT growth in 2013 estimates. Longer-term, the deal greatly improves Heineken's growth profile, with emerging markets increasing to about 60% of EBIT and Western Europe dropping to 29%," it said.
(Shankar Ramakrishnan is the US investment-grade editor of IFR; Additional reporting by Andrea Johnson; Editing by Marc Carnegie and Ciara Linnane)
((shankar.ramakrishnan@thomsonreuters.com)(Reuters messaging: shankar.ramakrishnan.thomsonreuters.com@reuters.net))
Keywords: US CORP BONDS HEINEKEN/BEER