AB InBev Credit Risk Soaring on SABMiller Merger Financing Plans

  • Brewer's CDS surge to three-year high of 87 basis points
  • AB InBev CDS exceed SABMiller's by record 23 basis points

The cost of insuring Anheuser-Busch InBev NV’s debt is surging on concern the Belgian brewer may need to borrow a record amount of debt to buy SABMiller Plc.

Credit-default swaps on AB InBev rose to a three-year high of 87 basis points from 66 basis points on Sept. 15, the day before it approached its South African competitor. The contracts exceed those of its smaller rival by a record 23 basis points, compared with five basis points last month.

SAB Miller has snubbed three takeover proposals as too low, including a potential offer of 65 billion pounds ($100 billion) yesterday, despite support for the overture from its largest shareholder. The offer would require AB InBev to borrow about $64 billion of new debt, analysts at CreditSights wrote yesterday, in a deal that may surpass Verizon Communications Inc.’s $49 billion bond sale in 2013.

“The CDS market appears to be concerned over Anheuser-Busch InBev’s continued efforts to acquire competitor SABMiller with its latest bid of over $100 billion,” Diana Allmendinger, a New York-based director at Fitch Solutions, a unit of Fitch Group, wrote in a note Wednesday.

AB InBev lined up banks including Bank of America Corp. and Banco Santander SA to arrange as much as $70 billion in financing for the deal, people familiar with the matter said last month. It plans to use bridge loans from banks that it would refinance in the bond market, chief financial officer Felipe Dutra said in a conference call on Wednesday.

Shareholder Support

AB InBev accused SABMiller’s board of refusing to “meaningfully engage” and sought to rally support from shareholders for the plan, which would combine the world’s two biggest brewers in one of the biggest acquisitions ever. The price of 42.15 pounds a share in cash that most stockholders would receive is 44 percent above where SABMiller was trading before speculation of a deal, AB InBev said in a statement on Thursday.

“The fact that it may move away from a friendly takeover could negatively impact credit-default swaps,” said Duncan Fox, a Bloomberg Intelligence analyst. “SAB has plenty of joint venture partners. If they have an agreed deal, these relationships will be managed. With an aggressive deal, things may be different.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE