Britvic is a household name in the UK, where it is the second biggest soft drinks producer. Brands such as Robinson’s, J2O, Fruit shoot and Tango are its own – but it is also the exclusive bottler of Pepsi drinks for the UK, with revenue of £1.3bn.
In the US, Britvic is much less well known – but that has not stopped it finding a second home, financially speaking, in the US private placement market.
In that way, Britvic is typical of European issuers of US PPs. The mainly US-based investors are willing to analyse credits they don’t already know, and then to stick with them, deal after deal.
Britvic’s involvement with the market goes back nearly 10 years. “Before we did our IPO in 2005, we set up a £450m bank facility,” says Dominic Whyley, director of treasury at Britvic in Hemel Hempstead. “At the time the bank market was very strong and supportive, but we wanted to have an alternative source of funding as well.”
From the original group, Barclays, HSBC, Lloyds Bank and Royal Bank of Scotland are still with Britvic.
Britvic issued its first US PP for £229m-equivalent in 2007, the year it bought Ireland’s Cantrell & Cochrane for £170m. “We wanted a tranche of core long term, fixed rate funding,” says Whyley.
Rather than issuing PPs for specific acquisitions, Britvic’s policy has been to use PPs to term out debt, creating headroom in its bank facility for future needs.
Its PP debt has grown through a further three issues, partly as the company has grown, and partly through a gradual conversion of its debt to fixed rate, PP form. Some of Britvic’s original investors have bought all its subsequent offerings; others missed some deals and then returned.
“We have regularly evaluated our financing options, and typically the private market has at the time been the most appropriate,” Whyley says. “We don’t think it’s necessary or appropriate to have a public rating at the current time. We can issue manageable deal sizes and we have a supportive group of investors that understand our credit story.”
Britvic has never used any other kind of non-bank funding. Keeping Barclays and RBS as agents, it returned in November 2009 with a $250m issue in four tranches from five to 10 years – roadshowing in the US as usual.
Then in May 2010, Britvic moved into France with the €237m acquisition of Fruité, maker of Teisseire fruit syrups. The deal was financed from bank facilities and a £94m share placement, but in September 2010, Britvic raised $163m and £7m of seven to 12 year PP debt.
Consent sought for merger
Since then, Britvic’s big manoeuvre has been the attempted all-share merger with AG Barr, the Scottish drinks group that makes Irn-Bru. News of the talks became public in September 2012 and Britvic headed to the US to meet PP investors, whose consent was needed for the merger. That was obtained without difficulty, but after nearly a year, the Barr deal was abandoned in July 2013.
With its latest private placement in November 2013, Britvic needed a smaller amount, partly to refinance two PP notes that will mature in February and December 2014. The issue comprised four tranches of seven to 12 year notes totalling £35m and $44m at coupons from 3.4% to 4.24%.
Britvic held a fresh contest and chose Lloyds and RBS as agents. To maximise the efficiency of refinancing, it took advantage of one of the PP market’s unusual features: funds can be drawn down at a future date, in this case February 2014.
Whyley highlights two ways the market has changed through the financial crisis. “In 2007 a number of investors were able to do the swap into sterling themselves,” he says. “That fell away in 2009 and 2010, and then came back in our current deal.”
Meanwhile, in the crisis years, some US investors became unwilling to invest in Europe, or in specific countries. That, too, has now largely gone.
“What we have done, since 2007, is make a concerted effort to maintain a regular dialogue with our investors,” Whyley says. “We do a half yearly call on our results, and I know investors appreciate it.”
Britvic will always look at other sources of financing, but for the moment, the PP market is hard to beat. “We’ve issued four times, been through a successful consent process when we needed to and investors have been very supportive,” Whyley says. “It’s still a market we’d see as leading our financing options, alongside the bank market.”
And while the cost of bank debt has risen in the last few years, Whyley adds, PPs have got cheaper with interest rates, reducing if not totally eroding banks’ cost advantage.