Takeda Debt Rating Cut by Moody's on $62 Billion Shire Deal

(Bloomberg) -- Takeda Pharmaceutical Co.’s credit rating was downgraded by Moody’s Investors Service one day after the Japanese drugmaker said it had reached a deal to buy larger rival Shire Plc for about $62 billion.

Takeda’s debt rating was cut to A2 from A1 on Wednesday, bringing it down one notch to the sixth-highest investment-grade level. The new rating is under review for further downgrades, Moody’s said in a statement, calling the scale of the Shire transaction “extraordinary.”

Chief Executive Officer Christophe Weber capped a drawn-out pursuit of the U.K.-listed company on Tuesday, announcing an acquisition that will give Takeda wider reach into the U.S., the world’s biggest drug market, and strengthen its global pipeline.

Weber acknowledged in a conference call Tuesday that Takeda might see a drop in its credit rating, but stressed what is important is that it remain at investment-grade level.

Takeda shares climbed as much as 3.7 percent in early trading Thursday. The stock is still down about 16 percent since late March when it disclosed its interest in Shire.

Yield premiums on Takeda’s dollar bonds maturing in January 2022 rose 1 basis point to 129 Thursday, according to Bloomberg-compiled data. The cost to insure the firm’s debt against non-payment was around 76 basis points Wednesday, little changed from the previous day, according to data provider CMA and a CDS trader.

The Japanese company agreed to buy Shire for 46 billion pounds ($62 billion), or 49.01 pounds a share in cash and stock. To help fund the cash portion of the deal, Takeda secured a bridge loan facility of $31 billion with JPMorgan Chase Bank NA, Sumitomo Mitsui Banking Corp. and others.

Under the terms announced Tuesday, Takeda’s reported debt will increase to around 6 trillion yen ($55 billion) from about 1 trillion yen, Moody’s said in the statement. That’s counting potential acquisition debt of about 3 trillion yen for the cash portion of the deal, it said. That would almost double Takeda’s debt to earnings before interest, taxes, depreciation and amortization to about six times, the rating firm said.

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