Europe’s Brexit Bond Drought Ends as Molson Coors Offers Debt

  • Brewer says its debt sales will total about $6.8 billion
  • Bonds to help fund buyout of MillerCoors stake from SABMiller

The corporate-bond market is showing signs of life after a dry spell brought on by anxieties about the U.K.’s decision to leave the European Union. 

Beermaker Molson Coors Brewing Co. said on Wednesday it offered euro-denominated securities, a day after it sold $5.3 billion of notes in the first deal by an American company since Britain voted to exit the bloc. The U.K. decision sparked a surge in risk premiums, pushing borrowers to the sidelines and investors to the safety of government debt.

There’s fertile ground for a resurgence in credit markets. Investment-grade companies in the U.S. haven’t been asked to pay so little to borrow in more than a year and the repercussions of Brexit have made it less likely the Federal Reserve will lift interest rates before 2018. Meanwhile, European Central Bank stimulus has pushed borrowing costs toward record lows and fueled investor demand for bonds.

“Brexit is the only thing holding companies back” said Roger Webb, a London-based investment director at Aberdeen Asset Management Plc., which oversees about 290 billion pounds ($389 billion). “I’ve been told to expect some offerings this week if the market stays calm. Funding conditions otherwise are good and the ECB is offering some support.”

Molson Coors, which is selling bonds to fund part of its $12 billion buyout of SABMiller Plc’s stake in MillerCoors, is offering 800 million euros of securities maturing in eight years, according to a person familiar with the matter who isn’t authorized to speak publicly and asked not to be identified. 

The beermaker sold bonds in the U.S. on Tuesday amid strong investor demand, along with 1 billion Canadian dollars ($770 million) of notes sold in a private placement. The euro portion will bring the sales to the equivalent of about $6.8 billion, Molson Coors said in a statement.

“They had a $38 billion order book from the best investment-grade investors in the world,” Susan Scher, head of investment-grade capital markets for Goldman Sachs Group Inc. in New York, said on Bloomberg Television Wednesday.

Rick Rieder, chief investment officer for global fixed income at BlackRock Inc., the world’s largest asset manager, said it makes sense that the first issuer to test the waters after Thursday’s vote is a stable company like Molson Coors.

“This is a non-cyclical company -- beer tends to be a fairly consistent cashflow product,” Rieder said in a Bloomberg Television interview on Tuesday. “So it’s one the markets will watch and say, ‘now the markets are absorbing that. Now we’ll go a little deeper into risk.’”

Denver-based Molson Coors benefited from borrowing costs anchored by low U.S. government-bond rates. Benchmark 10-year Treasuries yielded 1.46 percent on Thursday, about 8 basis points from a record low. 

That enabled the company to pay less for some bonds than higher-rated Anheuser-Busch InBev NV did in January. The yield on the $1.8 billion of 30-year Molson Coors bonds was 10 basis points less than similar maturity notes sold by AB InBev.

The average yield investors demand to hold investment-grade bonds in dollars fell to 2.91 percent on Tuesday, the lowest since April 2015, while the rate on euro-denominated securities dropped to 0.96 percent, three basis points from a record, according to Bank of America Merrill Lynch index data.

The ECB’s bond purchase program is boosting appetite for highly rated bonds. As of Friday, the central bank said it had bought 4.9 billion euros ($5.4 billion) of corporate notes since starting the stimulus program earlier this month.

The U.K. market, also shuttered by the Brexit vote, may be set to reopen, with Aberdeen’s Webb saying some short-dated bond offerings in sterling may also come in the next few weeks.

Bank of America Corp. strategists led by Hans Mikkelsen expect $20 billion to $25 billion of new investment-grade bonds to be sold this week, they wrote in a note to clients on Friday. Some planned sales were probably postponed before the U.K. referendum and the pipeline of funding that’s needed to finance acquisitions continues to grow, they wrote.

Twenty-one percent of respondents to a Bloomberg survey on Monday forecast issuance may be $20 billion to $25 billion this week, while an equal number said it would be less than $10 billion.

“You’re going to get the market trying to feel things out,” said Greg Nassour, co-head of investment-grade portfolio management at Vanguard Group, which manages $3.4 trillion. “When the market tone is strong, the new-issue market opens up rather quickly.”

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