Dublin-based Actavis Plc is getting a taste of just how starved debt investors are for yield. The drugmaker, which is wrapping up a $21 billion bond sale that will be the second-biggest ever, shaved about $10 million in annual interest costs from the biggest piece of the deal after receiving investor orders that were more than four times the offering size. The company is based in Dublin and is run from Parsippany, New Jersey.
The sale, eclipsed only by Verizon Communications Inc’s record $49 billion offering in 2013, will help fund Actavis’s acquisition of Botox-maker Allergan Inc. “There is a lot of money chasing less and less yield,” Julianne Bass, a San Antonio-based money manager at USAA Investment Management Inc, which oversees about $50 billion, said in a telephone interview. “This deal offers a lot of supply at attractive spreads.”
The European Central Bank’s unprecedented plan to buy bonds is leaving investors little choice other than to purchase additional company securities, which look preferable to the more than $2.15 trillion of the world’s sovereign debt that has negative yields.
Actavis is offering $4 billion of 10-year notes that are being sold at 1.75 percentage points more than treasuries with similar maturities, according to a person with knowledge of the deal who wasn’t authorized to speak publicly.
The securities had initially been marketed at a spread of 2 percentage points. The company’s banks, led by JPMorgan Chase and Co, Mizuho Financial Group Inc and Wells Fargo and Co, received orders for $90 billion of the debt.
The longest-dated piece of Actavis’s nine-part deal consists of bonds maturing in 30 years that are being sold at a yield of about 2.1 percentage points more than similar-maturity treasuries, down from an initial premium of about 2.4 percentage points.
‘Highly liquid’
Actavis is a “relatively high-yielding name in a relatively stable industry that probably will be highly liquid,” Carol Levenson, an analyst at Gimme Credit LLC, wrote in an email. “Management has been hugely aggressive with the balance sheet and obviously would be willing to flirt with junk ratings in the name of getting a deal done. I doubt that the deal making is over for Actavis.”
On Monday, Standard and Poor’s assigned its BBB-rating to the debt offering, the lowest investment-grade rating. Moody’s Investors Service graded it an equivalent Baa3.
Actavis said in a statement that proceeds would be used to complete the purchase of Allergan, announced in November, for about $65 billion – last year’s largest announced pharmaceutical deal – to become one of the world’s 10 biggest companies in the industry. The drugmaker said on Monday it raised about $9 billion from a share offering and will borrow under a term loan for additional financing for the purchase.
Actavis stock has gained 36 per cent over the past year, more than double the increase in the Standard and Poor’s 500 Index.
“There is a lot of global debt yielding negative, a lot of cash that needs to be put to work, and not a ton of issuance, which has left investors hungry for yield,” Jack Flaherty, a money manager at New York-based GAM USA Inc, which oversees $17 billion, said. –(Bloomberg)
