(Updated with final pricing in second paragraph).
By Patrick McGee
McKesson Corp. (MCK) sold $900 million worth of bonds due in three and 10 years on Thursday, offering yields of 0.65 and 1.10 percentage points over comparable Treasurys.
The bonds were priced to yield 0.985% and 2.713%, respectively. The offered yield fell 0.05 point in the marketing period, which usually signals strong demand.
The San Francisco-based health-care-services company is using the proceeds to repay $500 million worth of 5.25% notes due next March and replenishing working capital.
It may also use the cash for general corporate purposes, including the $2.1 billion acquisition of PSS World Medical Inc. (PSSI) announced a month ago.
"We intend to finance the transaction using a mixture of cash on hand and the sale of new debt by accessing long-term debt capital markets," McKesson said in the bond prospectus.
The bonds are expected to be rated Baa2 by Moody's Investors Service and A-minus by Standard & Poor's Ratings Services and Fitch Ratings.
Fitch said it will keep McKesson at the A-minus rating as long as it maintains debt below 1.4 times its earnings before interest, taxation, deductions and amortization, or EBITDA.
Increases above this range "will likely be tolerated" as long as Fitch believes the company is committed to reducing debt leverage to below 1.4 times within 12 to 18 months, the ratings firm said.
McKesson held $2.83 billion of cash as of Sept. 30, 2012.
Bank of America Merrill Lynch and J.P. Morgan Chase & Co. are lead underwriters on the deal.
Write to Patrick McGee at firstname.lastname@example.org
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