Bristol-Myers Loan for Celgene to Rank Among Top 10 Ever

(Bloomberg) -- Bristol-Myers Squibb Co. is taking out a $33.5 billion loan to help finance its purchase of Celgene Corp. in the largest ever pharmaceutical-company acquisition.

The loan will contribute to the $74 billion cash-and-stock deal and be refinanced with $32 billion of new debt, according to filings on Thursday. It will rank as the seventh largest bridge facility on record, according to data compiled by Bloomberg. Morgan Stanley and MUFG Bank Ltd. are underwriting the financing.

The deal may give a boost to what’s expected to be a weak year for investment-grade debt issuance following the worst for the U.S. market in a decade. While strategists at Wells Fargo & Co. expect strong M&A activity within pharmaceuticals, they’re calling for total supply across the sector to fall, according to a Dec. 6 report. They cited Amgen Inc., Biogen Inc., Merck & Co Inc., Gilead Sciences Inc. and Bristol-Myers as potential candidates.

“You can look around and see other companies that have drugs coming off patent in the next couple years that are significant,” said Bloomberg Intelligence analyst Mike Holland. “Consensus doesn’t seem to be expecting another $50 billion to $100 billion deal, but if it’s structured like this with equity and debt, and leverage is under three times, it can most likely get done.”

Bristol-Myers Loan for Celgene to Rank Among Top 10 Ever

Net leverage after the deal will be 2.8 times debt to a measure of earnings, Holland said. The combined company will generate $17 billion of adjusted earnings before interest, tax, depreciation and amortization, compared to $48 billion of net debt, according to Holland and company statements.

Bristol-Myers Chief Financial Officer Charles Bancroft said on a conference call the company will “still have a very strong balance sheet” and should be able to delever “pretty quickly.”

The New York-based company said it’s committed to maintaining strong investment-grade credit ratings and expects the combined company to generate more than $45 billion of free cash flow over the first three full years after the deal closes, according to a statement on Thursday. It’s also planning to maintain its dividend policy and buy back $5 billion of shares upon the close of the transaction. That may not be enough to appease credit raters.

Moody’s Investors Service said it may cut Bristol-Myers’ A2 rating, the sixth-highest investment-grade ranking by one notch following the announcement. It cited the higher financial leverage, a measure of debt to earnings, resulting from the deal, in addition to risks related to execution and integration. S&P Global Ratings, which rates the company one step higher at A+, echoed similar concerns and said it may also cut its rating. Still, both ratings firms said they expected leverage to fall within two years of the transaction’s close.

Bristol-Myers Loan for Celgene to Rank Among Top 10 Ever

Investors bought Celgene’s bonds on the news, sending the 4.55 percent notes due in 2048 up more than 5 cents on the dollar to 92.154 cents, according to Trace bond price data. The spread -- the extra yield investors demand to hold the debt over Treasuries -- tightened about 40 basis points, or 0.4 percentage point, across Celgene’s maturities.

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