Constellation Brands is hitting the retail market next week with an $800 million "B" loan priced at LIBOR plus 23/ 4% and market players are buzzing in anticipation. With a track record for paying down debt promptly and a position as one of the few diversified alcoholic beverage makers in the corporate arena, Constellation is viewed as a stable investment. "They're known to de-lever quickly, post acquisition," said Gil Marchand, senior portfolio manager at Aladdin Capital.
The worldwide wine, beer and spirit company is seeking a $2.05 billion financing package to back its $1.1 billion acquisition of Australian vintner BRL Hardy. The five-year institutional piece will launch to retail on Feb. 27. Leads J.P. Morgan, Citibank and UBS Warburg pitched Constellation's five-year, $400 million revolver and an "A" piece for the same amount to managing agents last week. Thomas Summer, Constellation's cfo, and bankers at J.P. Morgan and Citi did not return calls for comment, while a UBS official declined to comment.
Investors used to be nervous that the company used a lot of free cash flow, but now it has a good credit reputation to stand on, said an analyst familiar with the company. "They have a good reputation in the bond market," Marchand added, explaining that Constellation frequently issued bonds to finance previous acquisitions. "The company typically uses free cash flow to take down debt shortly after acquisitions," added Carla Casella, senior analyst at lead bank J.P. Morgan. She also noted that Constellation's total leverage was at its lowest point, of 2.9 times, since early 1998, just prior to the Hardy announcement.
Still, Standard & Poor's and Moody's Investors Service placed Constellation on review for a downgrade last month, citing the integration and financing risk for the Ba2/BB rated company. The new acquisition debt would add to the company's September 2002 reported $1.35 billion debt pile. Casella further noted that the Hardy purchase is Constellation's largest, with the Turner Road Vintners deal for $295 million running a far second.
The merger would boost Constellation's status as the world's largest wine business, surpassing present leader E.&J. Gallo Winery. Fairport, N.Y.-based Constellation's projected wine sales with the Hardy union would total $1.7 billion, compared with Gallo's estimated $1.4 billion in sales in 2001.
The pro rata is priced at LIBOR plus 21/ 4%, with a 75 basis point upfront fee on $40 million tickets, said a banker familiar with the deal. A $450 million bridge piece is also included in the debt package. The deal is fully underwritten with J.P. Morgan and Citi both taking 40% stakes and UBS taking 20% of the facility.