Bigger, Beerier Bonds Are the New Front in Bond Market Liquidity
"Mega" is but one superlative that could be used to describe the corporate bond market in 2015.
As CreditSights pointed out in a note published late on Tuesday, record sales of corporate bonds in 2015 were largely fueled by dozens of mega-deals. Some 47 deals worth over $5 billion or more came to market, up from the 28 sold in 2014.
Those 47 deals added more than $400 billion to total sales, double the $184 billion added to overall issuance in 2014.
In other words, the big are getting bigger. They are about to get a lot beerier.
Bloomberg reported that Anheuser-Busch InBev will start selling at least $25 billion worth of bonds on Wednesday in what is expected to be the first part of the biggest global corporate debt deal, eventually moving to eclipse the $49 billion sold by Verizon Communications in 2013. As with so many of last year's mega-deals, the proceeds from AB InBev's bonds will be used to help fund a takeover, specifically its $100 billion purchase of SABMiller.
On that note, here is a selection of amusing quotes regarding the big beer bonds.
One via Bloomberg:
“I think this deal will be very well-received, and it will have an attractive spread to boot," said Joe Mayo, the head of credit research at Conning, a global insurance investment manager with about $92 billion under management. “When people are happy they drink beer, when people are sad they drink beer, and the company capitalizes on that.”
And a second via the Wall Street Journal:
“In volatile times, the market wants something simple and relatable to invest in,” said Matt Brill, a portfolio manager for fixed income at asset manager Invesco Ltd., which oversees roughly $791 billion. “Beer bonds are exactly that.”
There is perhaps another reason investors might flock to the mega-deal other than the fact that everyone seems to love beer. That reason is—aptly—liquidity. In a market said to be beset by trading difficulties, purchasing a piece of a mega-bond is akin to buying into an "on-the-run" issue in the U.S. Treasury market. And at potentially more than $25 billion, AB Inbev's new bonds won't just be sold into the corporate debt market on Wednesday; they will briefly become it.
Daily U.S. corporate bond trading averaged $26.7 billion in 2015—just a touch more than the expected minimum first slug of ABInbev's sale.