LatinFinance - January/February 2015 - 50

50 LATINFINANCE.COM - January/February 2015

CORPORATE HIGH-GRADE BOND

Coca-Cola Femsa
$2.15bn bond
Positioning itself as a global
company, the issuer found
long-end demand and tight
pricing
Coca-Cola Femsa, the largest Coca-Cola
bottler in the world, is a rare issuer in the
bond market. It has a solid cash position,
thanks partly to strong demand for soft
drinks in the region. KOF, as the Mexican
company is known among investors, does
not need to tap the capital markets regularly
unless it goes on a shopping spree.
That's what happened in the months
leading to its landmark $2.15 billion, tripletranche bond sale in November 2013. The
company had closed a $1.86 billion all-cash
acquisition of Brazilian bottler Spaipa
the previous month and a $448 million
purchase of Brazil's Companhia Fluminense
de Refrigerantes in August. Those deals

Source: flickr by Ojmonin87

ever from an Argentine corporate issuer.
Achieving such a large size and such a
wide investor base is impressive considering
YPF was by then controlled by the
Argentine government. The state's 2014
default had not happened when the bond
sale took place, although it was already
under mounting pressure from holdout
creditors. A deal to compensate Repsol for
the nationalization was finalized but had not
yet taken place. The country was still weeks
from signing an agreement with Paris Club
creditors over a debt of close to $10 billion.
YPF met investors in a non-deal
roadshow in mid-2013. It issued a $150
million, five-year secured bond to assess
interest in September, followed by a fiveyear $500 million bond in December.
"That was our strategy - to test the
waters first with a toe, and then with a
whole foot, before finally diving in," says
Daniel González, the company's chief
financial officer. "Decoupling ourselves
from the Argentine sovereign was a
challenge, and that was part of our strategy
- not only to separate ourselves from
Argentina, but to get that message across."
After months of preparation,
González says investors ultimately had
more questions about the company's
fundamentals, the value of its shale gas
reserves, its output and its Ebitda than
about Argentina's financial problems.
"When pricing the deal, no one mentioned
Argentina as a benchmark," says González.
HSBC, Itaú BBA and Morgan Stanley
managed the April deal, tightening pricing
from the initial guidance of 9%, with
investors telling LatinFinance at the time
that the value of the company's assets
prompted them to place orders for the deal.
Chadbourne & Parke, Estudio O'Farrell,
Milbank, Tweed, Hadley & McCloy and
Tanoira Cassagne gave legal advice.
"One of the most important things for us
was to expand our investor base. The first
bond was bought by about 20 investors,
then about 100 chipped in for the second,
and more than 300 for the third," González
says.
The last bond allowed YPF to attract not
only emerging market investors but also
high-yield and retail investors, he says.
"There were important orders from hedge
funds. There was also strong participation
from real money accounts, a lot of retail,
and that was new for us. Most of the
demand came from the United States, but
we also had orders from the Latin American
region and Europe." LF

DRINK UP: Investors' thirst for a bond
by Coca-Cola Femsa allowed the bottler
to add a 30-year tranche after launch

followed KOF's purchase of a 51% stake in
Coca-Cola Bottlers Philippines for $688.5
million - the bottler's first move outside
Latin America - in a deal that closed in
January 2013.
The company had financed the
purchases with bank loans. But after a
nondeal roadshow to update investors
about its performance, KOF executives
realized that demand for a bond would be
high.

The A2/A-/A-rated company planned to
issue a five-year and a 10-year tranche. But
strong demand prompted bookrunners
Citibank, Goldman Sachs, HSBC, JPMorgan
and Mitsubishi UFJ Financial Group
(MUFG) to add a 30-year tranche at the 11th
hour. Cleary Gottlieb, Raz Guzmán and
Skadden Arps were legal advisers.
The banks took more than $6 billion in
orders, allowing them to tighten pricing
from initial indications on the five and
10-year tranches. The lead managers sold
the $1 billion 2018 at 105 basis points over
US Treasuries, to yield 2.403%, and the
$750 million 2023 at 135 basis points over
Treasuries, to yield 4.057%. The long-bond,
a $400 million 2043 added after launch,
was priced to yield 5.363%, at 155 basis
points over the benchmark.
KOF's chief financial officer, Héctor
Treviño, links the success of the transaction
not just to his readiness to take advantage
of good conditions but also to the bottler's
positioning with investors.
"We wanted to be seen as a global
high-grade investment credit, not only a
Latin American one, because we had the
acquisition in the Philippines. We wanted
to differentiate ourselves, because there is
a price to pay when [investors] see you as
an emerging-market issuer," Treviño says.
"We told investors that we were the largest
Coca-Cola bottler in the world, and we
were very important for Coca-Cola."
Investors seem to have liked the story.
All tranches traded tighter after execution,
and the 2023 bond was priced 30 basis
points inside a $300 million 10-year bond
from the parent company, Femsa.
As the bonds rallied further, the
borrower came back for more in January,
adding $350 million to the 2023 and 2043
notes at tighter yields than it registered
when it sold them in November.
Strong cash flow means that KOF will not
need to raise more capital unless it makes
another acquisition, says Treviño. And
while it does not have concrete plans to do
so, it is always browsing around for a good
bargain.
"The opportunities to buy come
sometimes, and if you don't take them,
you may not get another one in 20 or 30
years," he says. "We could make a move if
there was an opportunity to buy bottlers
in Mexico or Brazil, where there are still
some independent bottlers. That would
be a synergetic acquisition, because
we have strong operations in those
countries." LF
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