By Mike Cherney
Medical-device maker Medtronic Inc. on Monday launched the
largest corporate-bond sale of the year, offering to sell $17
billion to finance its acquisition of Ireland's Covidien PLC.
The deal beats out Apple Inc.'s $12 billion sale in April,
making it the largest bond sale by any company in the world this
year, according to data provider Dealogic. French cable operator
Numericable Group sold $10.9 billion, of bonds, also in April, and
Oracle Corp. sold $10 billion in June.
The largest corporate-bond sale on record came in September
2013, when Verizon Communications Inc. sold $49 billion.
Demand for the Medtronic bonds were brisk, with investors
placing more than $45 billion in orders for the bonds, according to
a person following the sale. As a result, yields were lowered
throughout the day. A 10-year bond was initially offered to yield
roughly 1.55 percentage points more than benchmark Treasurys, but
is now being offered to yield 1.40 percentage points more.
In recent trade, the 10-year Treasury note was yielding 2.217%
after hitting a five-week low of 2.15% earlier in the trading
session. Bond yields have remained surprisingly low this year due
to weak growth, particularly in Europe and China, accompanied by
low inflation.
The strong demand for the sale illustrates how bond buyers are
still willing to bet on highly rated corporate debt, which offers
more yield than low-rate Treasurys, even amid concerns about global
economic growth. Medtronic's bonds were provisionally rated A3 by
Moody's Investors Service, well within investment-grade
territory.
The Medtronic deal will add to the deluge of U.S. corporate-bond
sales in 2014, with issuance on pace to best last year's record
high.
Medtronic, based in Minneapolis, has said it plans to redomicile
in Ireland once the merger is completed, an inversion deal aimed at
taking advantage of lower corporate-tax rates overseas. The company
previously indicated it was looking at taking on $16 billion in
debt to help pay for its $43 billion takeover of Covidien.
Medtronic initially planned to partially pay for the deal with
$13.5 billion in cash held by its foreign subsidiaries, but decided
instead to tap credit markets after a tax-rule change from the
Obama administration.
The A3 rating from Moody's is one notch below where the company
was previously rated. Moody's said the A3 rating "will reflect its
large scale and diversification, tempered by a strong commitment to
shareholders and relatively high gross debt levels."
An outstanding 2024 bond from Medtronic recently traded to yield
1.09 percentage points more than comparable Treasurys, for a yield
of 3.409%, according to MarketAxess.
Write to Mike Cherney at mike.cherney@wsj.com
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