US CREDIT-InBev takeover may push Anheuser near junk rating

By Anastasija Johnson

NEW YORK, June 12 (Reuters) - Belgian brewer InBev's
proposed takeover of Anheuser-Busch Cos Inc (BUD.N: Quote, Profile, Research) could push
the iconic Budweiser maker's debt to the brink of junk
territory and send its bond spreads still wider.

InBev INTB.BR on Wednesday made a $46.3 billion bid to
add Budweiser to its own Stella Artois and Beck's beers and
create the world's largest brewer. For details click on
[ID:nL12619037].

InBev, the world's No. 2 brewer, said it plans to finance
the deal with at least $40 billion in debt and a combination of
non-core asset sales and equity in a move that could basically
double Anheuser-Busch leverage.

If the deal goes through, the combined company's leverage,
a measure of debt to earnings before interest, tax,
depreciation and amortization, could reach 5 times compared to
the current 2.4 times level at the U.S. beermaker, analysts
said.

This would make InBev's announcement that it is committed
to maintaining an investment grade profile hard to keep, they
added.

"It's a pretty stretched balance sheet for an investment
grade company," said Gimme Credit analyst Craig Hutson.

"It could be right on the cusp of investment grade versus
non-investment grade. It's a very adverse effect for
bondholders," Hutson added.

As of March end, Anheuser-Busch had approximately $9.1
billion of debt outstanding, which is rated "A2" and "A" by
Moody's Investors Service and Standard & Poor's, the sixth
highest investment grade level.

Both rating agencies said on Thursday they may downgrade
the Budweiser maker because its credit measures will weaken
well below its current levels if the unsolicited bid is
accepted.

Anheuser said in a statement on Wednesday that it would
review the merits of the proposal and decide in due course.

Under its proposal, InBev would assume current Anheuser
debt. InBev CEO Carlos Brito in a webcast conference for
analysts said that new debt to finance the takeover was likely
to be based in the United States for tax reasons.

Merrill Lynch analyst Nico Lambrechts said in a research
note on Thursday that the takeover could be completely financed
with debt. For details, click on [ID:nL1219488].

While the world's fourth largest brewer shares rose 5.0
percent in afternoon trading on Thursday, its bonds weakened
and the cost to insure its debt against default increased.

Anheuser-Busch's 5.5 percent notes due in 2018 widened by
14 basis points to 197 basis points over Treasuries, according
to MarketAxess data.

The cost to insure its debt against default rose to about
95 basis points, or $95,000 per year to protect $10 million of
debt for five years, compared to about 76 basis points on
Tuesday before InBev made the bid, according to a trader.

"Given the heightened level of uncertainty for Anheuser, as
well as the potential for a significant leveraging event, we
still believe that investors should be buying protection on
Anheuser-Busch at current levels," Barclays analysts said in a
report.

While the deal makes strategic sense because it would
combine InBev's big operations in Western Europe, Brazil and
Canada with Anheuser's business in the U.S., Mexico and China,
it could take some time for the companies to reach an agreement
because Anheuser is likely to try to negotiate a higher price,
analysts said. For details, click on [ID:nN12310419].

The good news for bondholders is that the combined company
could generate nearly $3 billion of annual free cash flow to
repay debt and quickly lower its leverage, according to Gimme
Credit's Hutson.

Yet, "at the outset you are talking about a company that
relative to its investment grade peers would have a much worse
credit profile," Hutson said.

(Reporting by Anastasija Johnson)