Shire was poised to raise $12.1bn of debt to fund its takeover of Baxalta on Monday as the Irish pharmaceutical group seeks to lock in low borrowing costs in what would rank as the year’s eighth largest bond sale.
The debt was marketed across three- to 10-year maturities, which the company plans to use to retire the bridge loans it opened to finance its $32bn buyout of the rare disease drugmaker, according to two people who took part in the sale.
The deal would represent the first bond offering from the Anglo-Irish company, according to Dealogic, as it adds debt to finance an expansion that has already helped buoy its results. Shire last month forecast 2016 sales of as much as $11bn and boosted its cost savings projections from the deal with Baxalta.
Bond offerings from companies across the globe have accelerated after a sluggish start to the year, as corporate treasurers take advantage of low borrowing costs. Roughly $5tn of debt has been issued by companies, countries and agencies since the year started, the fastest pace in nearly a decade.
Demand for the Shire bond deal eclipsed $30bn, one person familiar with the sale said, adding that he expected that figure to rise before order books closed. Bank of America Merrill Lynch, Barclays and Morgan Stanley led the transaction, which will be completed later on Monday.
The bond offering lands days before closely scrutinised meetings from the Bank of Japan and US Federal Reserve, when the two central banks will deliver possible changes to monetary policy. That has jolted markets lately and sent Treasury yields near their highest levels since the Brexit vote. Bond yields rise as prices fall.
Matt Brill, a portfolio manager with Invesco, said that the rise in rates had nonetheless enticed some US investors back into the market as they search for income.
“There are some potential near-term hurdles to get over but the market is largely shrugging off the possibility of a rate hike on Wednesday,” he said. “This is the access to the market you’re given today and these companies will do fine whether or not there is a 25 basis point hike or not. People are taking a longer-term view.”
Moody’s and S&P both assigned their lowest investment grade ratings to Shire last week, ensuring that investors with high-quality debt mandates had access to the bond sale on Monday. Analysts with Moody’s noted that should Shire agree to other “large debt-financed acquisitions”, it could face a downgrade to junk territory.
The company’s new 10-year bonds were set to price with a yield 150 basis points above the benchmark US Treasury, or at roughly 3.2 per cent. Similarly rated and maturing corporate bonds traded with a yield 195 basis points above Treasuries last week, underlining the strength of the investor demand for new corporate paper.
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