London, July 30 - InBev's $45 billion loan backing its acquisition of Budweiser brewer Anheuser-Busch is edging towards completing the first phase of syndication after the deadline for commitments was extended into this week.
Around 20 of Inbev's closest relationship banks were invited to join senior syndication of the jumbo loan when the deal was launched on July 11th.
The banks were asked to make challenging commitments of $1.75 billion each in exchange for substantial fees of 100 bps, which equates to $17.5 million per bank.
Of the 20 banks, 13 to 16 banks are positively interested in participating in the deal, and some are currently seeking approval from their credit committees, one banker said.
The deal's pricing and fees are tempting, but the constraints on banks' balance sheets means that some of the banks invited are trying to make smaller commitments, banking sources said.
"Banks are invited at $1.75 billion but there could be exceptions," a banker said.
Smaller commitments would make life difficult for arranging banks, which need wide support at the top level and commitments of $1.75 billion to keep sell-down of the huge loan on track, and reduce their exposure to the credit.
However, the large commitments are taxing for cash-strapped banks. One bank has already declined and another three to four are negative, another banker said.
The lead banks -- Bank of Tokyo-Mitsubishi UFJ, Barclays Capital, BNP Paribas, Deutsche Bank, Fortis, ING, JP Morgan, Mizuho, Royal Bank of Scotland and Santander -- have underwritten $4.5-5 billion each, and are seeking to hold $3.2 billion after syndication, the sources said.
Many declines in senior syndication could mean the arranging banks are left long or over-exposed to the credit, which is an expensive predicament due to the cost of capital. However, they will have a chance to sell down their exposure during a general round of syndication expected to take place in September.
MARKET BELLWETHER
The loan, which raises serious questions about loan market capacity, is the second largest syndicated loan in Europe this year after BHP Billiton's $55 billion deal.
The deal is competing in syndication with BG Group's $14 billion loan. Although conditions in the European syndicated loan market remain challenging, some bankers are confident the market should be able to digest the jumbo loans.
"The investment-grade market is now complex: there are jumbos out there with large tickets pressuring banks whose capital is more restricted than ever. But even though conditions are challenging, there are ways of doing it," one banker said.
One of the key selling points of InBev's loan is that the richly-priced deal, which has an initial margin of 175 basis points (bps) over LIBOR, stepping down to 100 bps, allows for a quick re-use of capital.
InBev plans to cut the size of the loan by $19 billion or around 42 percent within a year, which will nearly halve the large $1.75 billion commitments and allow the banks to reuse the capital, a bank close to the deal said.
Of the $45 billion loan, $7 billion is a one-year bridge loan that will be repaid by asset disposals and $12 billion is a one-year bridge loan to be repaid by capital markets issues, the source said.
The remaining $26 billion will consist of a $13 billion three-year loan and a $13 billion five-year loan.
Syndication of the $45 billion jumbo loan received a boost earlier this month when ratings agency Standard & Poor's assigned a BBB+ rating to the previously unrated Belgian brewer. The agency assigned the same BBB+ rating to the $45 billion syndicated loan.
The rating relies on InBev issuing at least $9.8 billion in equity partially to finance the acquisition within six months after the closing of the transaction, S&P said in a statement.
To meet this target, InBev has secured an additional $9.8 billion bridge to equity loan from a group of seven banks, the sources said.