Teva Pharmaceutical Industries Ltd. completed the first step of a $20 billion bond sale, a vindication of its earlier decision to accelerate the fundraising.
The Israeli drugmaker sold $15 billion of notes to finance its takeover of Allergan Plc’s generic-drugmaking business, according to data compiled by Bloomberg. The company reduced its borrowing costs by lowering yields on all parts of the deal after receiving investor orders exceeding $70 billion, according to a person with knowledge of the matter.
Investors are piling into corporate debt to escape more than $11 trillion of mostly sovereign notes with negative yields. More than 64 percent of respondents to a Bloomberg News survey expect corporate-bond issuance this week in the U.S. to exceed $30 billion.
“Look at us relative to the rest of the world -- we’re still kind of high-yielding relative to Germany, Japan or pretty much anywhere in Europe,” said Zachary Chavis, a portfolio manager at Sage Advisory Services Ltd., which manages $12 billion. “You’ve definitely seen the demand from overseas for U.S. corporates.”
Teva’s chief financial officer said earlier this year that the bond sale could take place in September or the fourth quarter but the company moved up the sale to take advantage of near record-low borrowing costs.
Teva plans to sell a total of about $20 billion in debt, with sales in euros and Swiss francs coming “shortly” after Monday’s deal, according to a regulatory filing. The $15 billion U.S. dollar sale is already the year’s third-biggest in the U.S. investment-grade market, after Anheuser-Busch InBev NV’s $46 billion deal in January and Dell Inc.’s $20 billion offering in May, Bloomberg data show.
Teva sold the securities in six parts, with the longest portion being a $2 billion 4.1 percent 30-year bond yielding 1.85 percentage points above comparable government debt, according to data compiled by Bloomberg. That’s down from an initial offer of about 2.2 percentage points, said the person, who asked not to be identified because the deal is private.
Teva will also fund the Allergan unit purchase with a $5 billion term loan it received in November 2015, and $2.8 billion in short-term financing, which may include its bridge loan or revolving line of credit, according to the filing.
Barclays Plc, Bank of America Corp., BNP Paribas SA, Credit Suisse Group AG, HSBC Holdings Plc and Mizuho Financial Group Inc. managed the sale.
Moody’s Investors Service rated the bonds Baa2, or two steps above junk, in a statement on Monday. S&P Global Ratings gave the notes an equivalent BBB grade. S&P downgraded Teva’s credit rating to BBB from BBB+ last week, saying the acquisition “significantly increases debt leverage over the next several years.”
The deal comes as U.S. Treasury yields rise from record lows. Since the benchmark 10-year yield hit 1.36 percent on July 8, it’s bounced back at the fastest pace in more than a year. The 10-year Treasury yielded 1.58 percent at 4:28 p.m. in New York, the highest since June 23, the day the U.K. voted to leave the European Union.
Jack McIntyre, a money manager at Brandywine Global Investment Management, which oversees $70 billion, said corporate borrowers may be trying to take advantage of interest rates that are still historically low on the belief that they may rise further.
“I think these guys probably see that and say, ‘Hey, I’m not going to try to pick the bottom. We’ve seen a backup and I want to issue some paper,”’ McIntyre said.