By Patrick McGee
Two jumbo-size bond deals are bringing some life back to the
corporate-debt market after a couple of quiet sessions.
Watson Pharmaceuticals Inc. (WPI) has a prescription for a $3.9
billion, three-part bond deal, and insurance holding company
MetLife Inc. (MET) is issuing a $1 billion, two-part offering.
Both companies aim to take advantage of rock-bottom borrowing
costs. Average yields declined to 2.81% Wednesday, setting a record
for the second time this week, according to a Barclays index dating
back to 1973.
Watson is raising funds for its $5.94 billion acquisition of
Swiss rival Actavis Group. The pharmaceutical sector has seen a
series of acquisitions lately, many of them related to major drug
makers' efforts to build up their pipelines as many pharmaceutical
product patents are set to expire in coming years.
The Actavis deal, announced in April, would more than double
Watson's international access and make it the world's third-largest
maker of generic drugs, according to The Wall Street Journal.
The bonds are rated Baa3--the lowest investment-grade rating--by
Moody's Investors Service, and BBB by Standard & Poor's Ratings
Services and Fitch Ratings.
Moody's on Thursday said the Actavis acquisition would raise
Watson's financial leverage to roughly four times equity, versus
1.2 times at the end of the second quarter. It also said the
acquisition would "significantly boost Watson's global competitive
position."
Watson is offering senior unsecured notes with maturities of
five, 10 and 30 years. They are anticipated to offer 1.35, 1.70 and
1.90 percentage points of yield more than comparable Treasury
rates, according to a term sheet.
When Watson last issued five- and 10-year notes in August 2009,
it paid spreads to Treasurys of 2.625 percentage points on
each.
MetLife, which boasts A3 and A-minus ratings from Moody's and
S&P, is selling $1 billion of bonds evenly divided between
five- and 10-year maturities. They are expected to offer 1.05 and
1.35 percentage points over Treasurys. The offer yields fell 0.05
point from earlier pricing guidance, reflecting strong demand.
The two deals will push the month's issuance to $114.7 billion,
according to Dealogic. That makes September the second-busiest
month this year, after March, and the eighth-busiest month in 17
years of records.
-Tess Stynes contributed to this article.
Write to Patrick McGee at patrick.mcgee@dowjones.com
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