Merck Plans $2 Billion Bond Sale After S&P Upgrade

Merck & Co., the second-largest U.S. drugmaker, may sell $2 billion of senior unsecured bonds as soon as today to help repay debt coming due in the next year.

Bank of America Corp. and JPMorgan Chase & Co. are managing the transaction, according to a filing with the Securities and Exchange Commission that didn’t specify the size or timing of the offering. Merck plans to sell $850 million of 5-year notes and $1.15 billion of 10-year debt, according to a person familiar with the transaction.

The drugmaker is marketing the securities almost two weeks after S&P raised its rating on the company one level to AA, citing moves to cut debt after its acquisition of Schering- Plough Corp. last year. Proceeds will be used for general corporate purposes, including the reduction of short-term debt, Merck said in the filing.

“Merck probably isn’t going to save a lot in interest expense by refinancing its short-term debt, but it’s still a good idea to address those maturities now while the bond market continues to be welcoming,” said Carol Levenson, director of research at Gimme Credit LLC in Chicago, said in an e-mail. “Taking advantage of the recent upgrade is also a good idea with regard to timing.”

The 5-year notes may yield 57 basis points more than similar-maturity Treasuries and the 10-year debt may pay a spread of about 77 basis points, said the person, who declined to be identified because terms aren’t set. A basis point is 0.01 percentage point.

‘High Standing’

Moody’s Investors Service assigned Merck’s notes a grade of A1, one step lower than S&P. Merck benefits from “a relatively high standing in credit markets, with ready access to capital,” S&P said in its Nov. 24 statement.

The pharmaceuticals maker faced $4.1 billion of debt coming due in the 12 months ending Sept. 30, 2011, it said in today’s filing.

Merck last sold bonds in June 2009, when it raised $4.25 billion in a four-part offering, its largest ever, to help pay for the Schering-Plough takeover, according to data compiled by Bloomberg.

A $1 billion portion of 4 percent notes due June 2015 from that transaction traded at 109.4 cents on the dollar to yield 1.85 percent, or 27 basis points more than similar-maturity Treasuries, on Dec. 3, according Trace, the bond price reporting system of the Financial Industry Regulatory Authority.

Merck & Co., which acquired Schering-Plough last year, said Nov. 30 that its board of directors elected Kenneth C. Frazier, currently Merck’s president, as chief executive officer and president, as well as a member of the board, effective Jan. 1, 2011.

Pfizer Inc., based in New York, is the world’s largest drugmaker.

To contact the reporter on this story: Tim Catts in New York at tcatts1@bloomberg.net.

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net.

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