Brazil-based Companhia de Bebidas das America (AmBev), Latin America's largest beer brewer, is tapping the market keg with a structured corporate $500 million deal backed by a political risk insurance policy (PRI) from Steadfast Insurance Co., a wholly owned subsidiary of Zurich American Insurance.

Companhia Brasileira de Bebidas (CBB), AmBev's wholly owned subsidiary, will issue the notes and AmBev will act as the guarantor. UBS Warburg will underwrite the transaction. The 144A deal, expected to close by year-end, features a reserve fund intended to protect CBB and AmBev against the risk of expropriation of the company's funds and the inability to convert Brazilian reais into U.S. dollars or to transfer these dollars to the trustee in the U.S.

Payments will flow to the investors in the U.S. every six months, and the payments will be made to the trustee provided there are no exchange controls. If the exchange controls are imposed there is a 12-month reserve fund in which the trustee can draw upon. While the insurance policy is not re-instateable, if the reserve fund is used, it must be replenished after six months to curb the possibility that exchange controls are imposed in the future.

The company will use the proceeds of the transaction for capital expenditures, general working capital and to repay short-term debt.

Standard and Poor's assigned a preliminary BBB- rating to the transaction last week, matching Ambev's corporate local currency rating and piercing the sovereign ceiling. According to the rating agency, AmBev's corporate rating reflects the company's leadership in the Brazilian beverage industry with well-established brands and its solid financial profile.

However, the company's rating also reflects the risk of concentrating operations in Brazil, which provides a more limited financial flexibility compared to its international peers; the potential for increased competition from foreign players; and the challenges of growing its share in the soft-drink business. "Ambev was able to take advantage of their local currency rating, get the political risk insurance policy and a reserve fund for the deal," said an analyst at S&P. "This deal went very smoothly," said an analyst at S&P.

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