Teva Sells $15 Billion of Bonds
July 18 2016 - 6:11PM
Dow Jones News
By Sam Goldfarb
Teva Pharmaceutical Industries Ltd. sold $15 billion of bonds
Monday to help fund its purchase of Allergan PLC's generics
business, becoming the latest company to take advantage of
attractive financing conditions with a massive debt offering.
Despite an uptick in U.S. Treasury yields last week, the market
for investment-grade corporate debt remains extremely favorable for
companies, with fixed-income funds recording steady inflows and
corporate bond yields near historic lows.
Israel-based Teva entered a cash-and-stock agreement to buy
Allergan's generics unit in July 2015. The deal combines Teva, the
world's largest generic-drug company by sales, with the
third-largest competitor in the market. It included $33.75 billion
in cash and Teva shares valued at $6.75 billion.
Widely anticipated by investors, the Teva bond offering drew
strong demand from fixed-income buyers, in keeping with other
recent bond deals from companies including Oracle Corp. and Walt
Disney Co., investors said.
On June 29, Oracle issued $14 billion of bonds to fund general
corporate purposes, including share repurchases. On July 7, Walt
Disney locked in the lowest long-term borrowing costs of any U.S.
company in history when it issued a 10-year bond with a 1.85%
coupon and a 30-year bond with a 3% interest rate, according to
LCD, a unit of S&P Global Market Intelligence.
Teva's bond issuance, which is split among six different
tranches, is the third largest of the year in the U.S. market,
behind Anheuser-Busch InBev NV's $46 billion issuance in January
and Dell Inc.'s $20 billion placement in May.
The yield on a new $3.5 billion, 10-year Teva bond was finalized
by banks at 1.6 percentage points above the comparable Treasury
yield, or around 3.18%, according to a person familiar with the
matter. After pricing the U.S. dollar-denominated deal, Teva is
expected to raise several more billion dollars in the European debt
markets.
Despite their low yields, the Teva bonds offered good value
relative to "some of the other stuff in the defensive area of the
credit market," said Chris Heckscher, a Boston-based portfolio
manager and analyst at U.K.-based Standard Life Investments, which
oversees $373 billion in assets.
"Economies of scale are really going to make a difference in
this area of the drug market," he added.
After recession fears faded earlier this year, investment-grade
corporate debt has been in a sweet spot for many investors,
offering higher yields than Treasurys without the risk of junk
bonds or equities.
In the week ended July 13, investors poured $1.8 billion into
investment-grade corporate bond funds, representing the 19th
straight week of inflows, according to Bank of America Merrill
Lynch Global Research.
On Friday, the average yield-to-maturity of investment-grade
corporate bonds was 2.87%, or 1.45 percentage points above
comparable Treasury yields, according to Barclays PLC data.
The yield on the 10-year Treasury note was recently 1.585%,
according to Tradeweb. That is down from 2.273% at the end of 2015,
though up from its closing low of 1.366% set July 8 amid widespread
economic anxiety stemming from the U.K.'s vote to leave the
European Union.
Last week, Teva and Allergan said they had moved back the date
at which either company could back out of their agreement, under
certain circumstances, to Oct. 26 from July 26. When the deal was
originally announced, the companies said they expected the deal to
close in the first quarter of this year.
Write to Sam Goldfarb at sam.goldfarb@wsj.com
(END) Dow Jones Newswires
July 18, 2016 17:56 ET (21:56 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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