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, triple-tranche 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 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
AWARDS: Coca-Cola Femsa