AB InBev (ABI) have announced offers to exchange SABMiller Plc’s debt – including the guaranteed FBG Treasury (Aust.) Pty Ltd August 2020 bond – with obligations issued by either ABI or one of its guaranteed subsidiaries
The offer appears positive for bondholders, as the rating of the new notes will be in line with those of ABI’s other debt of A3 with a stable outlook. This is stronger than SABMiller’s current A3 rating, which remains on downgrade review.
Global ratings agency Moody’s has made the following comments on the action:
“Anheuser Busch InBev SA/NV’s (ABI, A3 stable) announced three offers on 14 November to exchange SABMiller Plc’s (A3 downgrade review) debt with obligations issued by either ABI or one of its guaranteed subsidiaries. These offers are credit positive for SABMiller because its bonds will be converted in new ABI’s notes and as such benefit from ABI’s guarantees. In addition, bondholders who accept the ABI’s offer will benefit from the same protection provided to ABI’s other debt and the new debt will rank pari passu with ABI’s other unsecured and unsubordinated debt securities. The offers follow the completion of ABI acquisition of SABMiller on 10 October 2016.
As part of the offers, SABMiller’s bondholders will also have to accept some changes in the terms and conditions of their existing securities. Some securities might encompass weaker protections compared to existing notes (e.g., ABI’s bondholders do not benefit from a change of control clause).
However, the rating of the new notes will be in line with those of ABI’s other debt (i.e. A3 with a stable outlook) and will be stronger than SABMiller’s current A3 rating, which remains on downgrade review indicating a degree of uncertainty and the risk of potential downgrade. In addition, the ratings on any outstanding SABMiller bonds may be withdrawn
if the company stops publishing financial results. Details of the offers are available on ABI’s regulatory filings.
While the offers expire between 5 and 13 December, early adopters will receive an early participation premium that varies depending on the specific offer. These offers cover most of SABMiller’s existing debt, with the exception of a small South African note issued by SABSA Holdings Limited for ZAR1 billion ($70 million) and a small amount of bank and other debt (for $895 million) as at March 2016.
Although the offers are credit positive for SABMiller, its A3 ratings will remain on review for downgrade reflecting uncertainties around its future business and financial profiles. ABI is disposing of some of SABMiller's core assets, including its European, Chinese and US operations. As a result, SABMiller's EBITDA, including its associates, could be reduced by around 30%, resulting in a stronger reliance on emerging markets (possibly about 85% of its remaining EBITDA), where financial results might be more volatile.
In addition, some of SABMiller’s assets might be merged into other ABI’s subsidiaries thereby reducing the cash available to service any remaining debt at SABMiller’s subsidiaries. However, the amount of assets to be merged is currently uncertain.
With a smaller and less stable earnings base, and uncertainty as to SABMiller’s ongoing debt burden, it is not yet clear if SABMiller's business and financial profile will continue to support its current A3 long-term rating on a standalone basis. Consequently, in the absence of a guarantee, the rating could be downgraded in the event of a lower creditworthiness.
The review is likely to conclude once there is greater visibility on the acceptance rate under the existing offers.”