LPC-AB InBev lining up $70 billion debt for SABMiller offer

Anheuser-Busch InBev is asking banks to underwrite up to USD 70 billion in debt financing to back its potential takeover of SABMiller, banking sources said.

The initial financing is expected to comprise bridge loans, which will be refinanced by bond issues, and longer term loans, the sources said.

Banks working on the deal include AB InBev’s core relationship banks: Banco Santander, Bank of America Merrill Lynch, Bank of Tokyo-Mitsubishi UFJ, BNP Paribas, Deutsche Bank, ING, JP Morgan, Mizuho Bank, Royal Bank of Scotland, Societe Generale and SMBC, banking sources said.

Banks remain highly liquid despite recent global market volatility and are eager to lend in size to core corporate clients such as AB InBev.

"It’s a lot to swallow, but it will get done," a head of loan syndicate said.

News of the financing package was first reported by Bloomberg. AB InBev and SABMiller both declined to comment.

A takeover of SABMiller, the world's No. 2 brewer with brands including Peroni and Grolsch, could likely cost upwards of 68 billion pounds (USD 103.05 billion), according to analysts' estimates.

The companies said on Sept. 16 that AB InBev had approached SAB about a takeover. Under UK takeover rules, the company has until Oct. 14 to make a firm offer.

The two sides have been in informal contact since the initial approach, sources close to the situation said.

Potential asset sales could also generate more M&A for banks to work on after disappointing levels of M&A financing so far this year.

Although banks are eager to lend, they may have to hold bridge loan exposure for longer as companies wait to issue bonds at better prices after bond prices widened dramatically in September.

“Banks are more conservative about taking bridge loan exposure. Companies will have to pay up and banks will have to wait for it to be refinanced,” a second syndicate head said.

When the mega merger was first discussed last year, bankers speculated that AB InBev could seek to raise a bridge loan of USD 75 billion to USD 80 billion before issuing USD 72 billion to USD 110 billion of bonds to fund an acquisition.

AB InBev is trying to reduce its net debt to EBITDA ratio to two times, down from about 2.5 times currently and is on track to do that by 2016, which would give it more room to finance a takeover.

If it goes ahead, the SABMiller acquisition is expected to completed in 2016 at the earliest.