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It is strange days when the maker of Budweiser breaks with its peers to go on a diet.
Anheuser-Busch InBev (ticker: BUD) is going on a "corporate debt diet," as Peter Tchir of Academy Securities calls it. He predicts companies will try to get their balance sheets in shape this year, thanks to pressure from last year's Federal Reserve rate increases and market forecasts of economic trouble.
At first glance, Anheuser-Busch's decision to sell investors $15.5 billion of debt last week doesn't seem very disciplined. But the sale will allow the company to pay down its debt over a longer period.
In other words, it is trading short-term debt for long-term debt, which should actually cut down on its balance-sheet bloat. While it isn't reducing overall debt, it is relieving financial pressure by extending its maturities.
AB InBev has already been penalized by shareholders for its bondholder-friendly cash policy. The company's shares have dropped nearly 10% since it said on Oct. 25 that it was cutting its dividend to speed up its debt-reduction efforts.
It plans to use the proceeds from last week's $15.5 billion sale to buy back old bonds maturing between two and seven years from now, according to a company filing. Its new bonds mature between six and 40 years from now, and more than half of them won't come due for at least 20 years.
That has been a trend across the investment-grade bond market. Companies have been issuing a larger share of long-term bonds, since a rally in long-term Treasuries has made it cheaper for companies to borrow for 10 to 30 years.
Just 40% of investment-grade bonds sold this year will mature by the end of 2024, according to Bloomberg data. The remaining 60% have longer maturities. Last January, those proportions were reversed; about 58% of bonds issued that month will mature by the end of 2023.
Another company selling debt Monday is extending its maturities-but it may or may not be cutting down on leverage.
Charter Communications (CHTR) was selling around $2 billion of debt on Monday, according to Bloomberg, split between 10-year and 30-year maturities. It has plenty of flexibility in what it does with the proceeds, according to a company press release.
Some of that cash could be used to pay down debt maturing next month or to repay a subsidiary's revolving credit facility, which would help clean up its balance sheet. The proceeds could also be spent on share repurchases, however. Charter's credit ratings are split between the bottom tier of investment grade, or BBB-minus, and the top tier of high yield, or BB-plus.
Other high-rated companies don't seem to be cutting back on debt just yet. Companies have sold $58 billion of investment-grade bonds in the first two weeks of this year, roughly 3% less than last year, according to Bloomberg.
BBB-rated FedEx (FDX) was selling a $500 million three-year bond on Monday. The proceeds are meant for " general corporate purposes." But the cash could be used to "opportunistically fund share buybacks" after the stock-market selloff in December, CreditSights says, when disappointing guidance prompted a selloff. (Its shares have fallen 7% since the company cut guidance Dec. 19).
And Fox Corp. is issuing about $6.5 billion of bonds to pay a dividend to 21st Century Fox (FOXA), which it will use to pay the tax liability created by Disney's (DIS) acquisition of its film and TV assets. Fox Corp., which has the equivalent of a BBB rating from Moody's, is the company that will remain after the Disney deal goes through.
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