Actavis Bonds Fall Most in Six Weeks; Novartis Raises $4 Billion

Bonds of Actavis Plc fell the most in six weeks after the world’s second-largest generic-drugmaker by market value agreed to buy Forest Laboratories Inc. for about $25 billion. A unit of Novartis AG sold debt in two parts.

Actavis’s $1.7 billion of 3.25 percent notes due 2022 declined as much as 0.8 cent to 94.6 cents on the dollar today, the biggest drop since Jan. 2, before trading at 95.3 cents to yield 3.9 percent at 3:17 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Leverage of the most active buyer of drug companies over the past three years will increase to around 4 times initially before declining to around 3.5 times within 12 months following the acquisition, according to a Moody’s Investors Service report today. The ratings company maintained its Baa3 grade of Actavis, citing the drugmaker’s “growing presence in the higher margin branded pharmaceutical market” and “the company’s track record of deleveraging following acquisitions.”

With a purchase of junk-rated Forest, Actavis will add Alzheimer’s drug Namenda and blood-pressure pill Bystolic to its products.

“The risk profile is increased,” Jessica Gladstone, a New York-based senior analyst at Moody’s, said in a telephone interview. “That said, we think there’s a good enough chance that they will be able to capture enough synergies to be back down to 3.5 times leverage.”

The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark used to hedge against losses or to speculate on creditworthiness, added 0.2 basis point to 64 basis points as of 4:32 p.m. in New York, according to prices compiled by Bloomberg. The measure increased from 63.8 basis points on Feb. 14, the lowest closing level since Jan. 15. U.S. financial markets were closed yesterday for Presidents’ Day.

Novartis Offering

The swaps gauge typically rises as investor confidence deteriorates and falls as it improves. The contracts pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

Novartis Capital Corp. issued $2.15 billion of 3.4 percent, 10-year notes and $1.85 billion of 4.4 percent, 30-year bonds to yield 77 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg.

The 30-year securities may be rated Aa3 by Moody’s and proceeds may be used for paying down existing debt and general corporate purposes, Bloomberg data show.

The risk premium on the Markit CDX North American High Yield Index, tied to the debt of 100 speculative-grade companies, rose for the first time since Feb. 3, widening 2.1 basis points to 317.4, Bloomberg prices show. Speculative-grade bonds are rated below Baa3 by Moody’s and less than BBB- at Standard & Poor’s. A basis point is 0.01 percentage point.

The extra yield investors demand to hold investment-grade corporate bonds rather than government debt was little changed at 100.1, Bloomberg data show.

Before it's here, it's on the Bloomberg Terminal.