Mixing tequila and Irish whiskey proves enticing for JB & Cia

Mexican buyers of Bushmills sell $500m of bonds to finance acquisition


Mixing tequila and Irish whiskey appears to go down well with bondholders. JB & Cia, the 250-year-old Mexican owner of Jose Cuervo, sold $500 million of bonds this week to finance its acquisition of Northern Ireland’s Bushmills from Diageo.

The bonds due in 2025 were sold to yield 3.87 per cent - well below the average 4.31 per cent for similarly rated emerging-market bonds, according to data compiled by Bloomberg. The family-owned JB is trying to reduce its dependence on tequila sales, a risk that Fitch Ratings said last week was a threat to the company’s credit rating.

Adding to the allure of the bond sale, it was just the fourth by a Mexican company this year, filling a gap for investors looking for ways to invest in the Latin American country’s debt through well-known companies. “This is a company that’s almost unique in its international businesses and recognition,” said Claudio Robertson, the head of fixed-income trading at Investment Placement Group, which bought the bonds. Now, with the Bushmills acquisition, “it’s transforming itself as a spirit distributor with Cuervo tequila as its cornerstone, a mini Diageo.”

Another indicator of the demand for JB’s bonds: The initial yield was 1.65 percentage points over comparable-maturity US Treasuries, less than the average 2.1 percentage point spread for similarly rated bonds sold in the past six months.

JB did not reply to e-mailed questions on the bond issuance. According to Fitch, JB had ample room to take on more debt. At the end of last year, the company had $225 million in cash and only $67.6 million of debt, Rogelio Gonzalez, an analyst at Fitch, said by phone from Monterrey, Mexico. Mexico’s peso climbed 0.1 per cent to 15.2966 per US dollar earlier in New York.

The bond proceeds will go to pay off a bridge loan that was used to finance the Bushmills acquisition in February, as well as for general corporate purposes, Mr Gonzalez said.

According to the Jose Cuervo website, the flagship tequila brand dates back to the son of a Spaniard who received a certificate in 1758 to begin harvesting agave, the plant from which tequila is distilled. Sales grew in the 1960s as Hollywood movies popularized the margarita, the company says. Bushmills, made from un-peated malted barley, traces its roots to a distillery registered in 1784.

After the transaction, tequila will account for 68 per cent of JB’s sales, down from 72 percent, according to an April 27th statement by Fitch. “They can sell Bushmills where Jose Cuervo is already strong, and sell Jose Cuervo where Bushmills is already strong,” Mr Gonzalez said.