Takeda's `Scary' Debt for Shire Deal Fuels Credit Market Concern

(Bloomberg) -- Japan’s biggest-ever acquisition may come at a steep cost for Takeda Pharmaceutical Co.’s financial health.

The Japanese drug maker secured a bridge loan facility of about $31 billion to help pay for its purchase of Shire Plc, in what likely is the largest borrowing ever by a Japanese company for an acquisition. Takeda’s net debt to earnings before interest, taxes, depreciation and amortization may rise to 5.4 times from 1.9 as of the end of December, and it may take several years for that gauge to fall back down to healthier levels, according to SMBC Nikko Securities Inc.

By pushing ahead with a deal of about 46 billion pounds ($62 billion), Takeda is choosing to seek growth in new markets at the cost of a jump in debt and possible credit downgrades. Debt market moves suggest investors are concerned about the effects of the deal: credit-default swaps insuring Takeda’s bonds against nonpayment started trading for the first time in at least several years this week, and yield premiums on the company’s notes have been climbing.

While the success of the acquisition will hinge on how much profit Shire generates, “it’s scary to think about the scale of the debt,” said Mana Nakazora, the chief credit analyst in Tokyo at BNP Paribas SA.

Takeda could face a multiple-step credit downgrade due to a “spike in leverage” if the purchase goes through, Moody’s Investors Service said late last month. The rating firm has an A1 rating on the drug maker, six levels above non-investment grade, with a negative outlook.

It will take three to five years to push Takeda’s net-debt-to-EBITDA down below 3.0 times based on “conservative” estimates, said Muneharu Hashimoto, a credit analyst at SMBC Nikko in Tokyo.

Takeda chief executive officer Christophe Weber said Tuesday on a briefing call that he sees that gauge going back to 2 times in three to five years before divestments, and that the firm intends to maintain its investment-grade credit rating.

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