Anheuser-Busch InBev’s bonds would likely be downgraded below investment grade if the Brussels-based brewer bought SABMiller using only debt, according to Fitch Ratings.

ABI on Wednesday confirmed it had approached London-based SABMiller’s board about a combination of the two companies, but that no offer had been made. A merger would create a brewing industry behemoth, with about 30% of the world’s beer market.

Responding to the news, Fitch said if a deal included significant equity funding and some divestments, ABI’s debt would likely be downgraded by multiple notches, but would probably remain solid investment grade.

But according to Fitch, the company’s ABI’s net debt/EBITDA leverage could rise more than sixfold in a fully debt-funded transaction that values SABMiller at a 30% premium to Tuesday’s market enterprise value.

A deal with the same premium but with 45% paid for in equity would result in a more manageable increase to around 4.5x at closing.

”It is likely there would be multi-billion-dollar proceeds from asset divestments that antitrust authorities could impose in the US and China, and scope for steady deleveraging thanks to solid free cash flow, both of which would help the credit profile,” Fitch wrote.

Under those assumptions and given ABI’s very strong competitive profile, the combined company would have the potential to retain a rating in the ‘BBB’ category, according to Fitch. Leverage is already stretched for ABI’s ‘A’/Stable rating, and even an all-equity deal that did not increase leverage could still put pressure on the rating due to the execution risk it would create.

“We continue to believe that a combination of ABI and SABMiller would have strong operational merits,” Fitch wrote. “A tie-up would create a global group with exposure to many high-growth and profitable markets.”

The combined group’s cash flow generation should be strong, despite challenges in organic revenue and profit growth including currency weakness in Brazil and loss of market share in the U.S.

But the merged companies “would also have a relatively large currency mismatch between its debt and revenue,” Fitch said. “Over half of cash flow would be generated in Latin America, eastern Europe and Africa, while most debt will be in dollars or euros, especially after new debt is raised to fund the deal.”

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