FIXED – The US loan market is ready to feast on AbbVie’s $ 38 billion jumbo bridging loan
(Corrects the rating and opening price in paragraph 10)
NEW YORK, June 27 (LPC) – A US $ 38 billion bridging loan to support US biopharmaceutical company AbbVie’s US $ 63 billion bid for Botox maker Allergan, and additional banking activity the merger will generate , should be greeted with open arms by a robust US lending market missed new lending opportunities.
“Everyone’s trying to get in there, trying to be a part of it,” said a senior banker.
According to LPC, a unit of Refinitiv, the fully subscribed 364-day bridge loan supporting the acquisition is the fourth-largest US dollar bridge loan on record. Along with Bristol Myers’ $ 33.5 billion bridge loan for Celgene, this is the second mega bridge loan in the healthcare industry in 2019.
Morgan Stanley and MUFG are leading the deal which will be used in conjunction with AbbVie’s existing cash to fund the cash portion of the acquisition. Morgan Stanley is the administrative agent for the bridge loan.
Lead banks should quickly reduce risk by tapping into AbbVie’s existing banking group, which is typical with such large loan commitments. A few banks will join at a high level, with a retail cycle expected to follow.
AbbVie has announced plans to refinance the bridge loan through ongoing funding that includes unsecured bonds and a new term loan, according to a filing with the U.S. Securities and Exchange Commission.
The bridging loan underwriting strategy could be a term loan or a combination of loans and bonds in the spirit of the financing of the Celgene purchase by Bristol-Myers for $ 74 billion. This deal was also led by Morgan Stanley and MUFG.
The bridging loan could be traded for a large Term Loan A (TLA) component that would come after TLA’s US $ 8 billion that partially subscribed to the Bristol-Myers bridging loan, and would testify to the new enthusiasm of the market for paper financing.
The purchase of Celgene by Bristol-Myers is the largest healthcare acquisition ever.
At current Baa2 / BBB + ratings, pricing opens at 112.5bp versus Libor with a 10bp commitment fee, according to the SEC filing.
READY TO LOAN
With the bulk of the investment grade loan volume in Q2 2019 consisting of refinancing of existing loans, the AbbVie loan should be welcomed as the market waits for opportunities to make the money work.
Investment grade M&A loans for the first half of the year, excluding AbbVie, totaled US $ 120.08 billion, down 16% from US $ 143 billion in the first half of 2018.
It is still unclear whether the new loan will stimulate the market enough to attract more fresh money business to the high-quality US space.
“It’s great for the market. It’s definitely great for Morgan Stanley and MUFG, ”said the senior banker. “But these things usually take a long time to develop. Unless something has developed over time.
A deal of this size is also a testament to the health of the market, several bankers said.
“It is a good sign that this is happening,” the senior banker said. “,
Refinancing activity is expected to continue into the third quarter, but AbbVie is already suggesting a potentially busy summer.
“The third quarter will start like this. Refinancing activity in July and August, then the summer vacation. Abbvie will help increase volumes, ”said a second banker.
AbbVie expects to generate significant annual operating cash flow to support a debt reduction target of US $ 15-18 billion by the end of 2021, enabling continued commitment to a Baa2 credit rating / BBB or better, AbbVie said. The company expects further deleveraging until 2023.
The acquisition is expected to be finalized in early 2020. (Reporting by Michelle Sierra. Editing by Leela Parker Deo and Jon Methven)