CVS Health (NYSE: CVS) today launched a $15 billion offering of SEC-registered senior notes backing its planned acquisitions of Omnicare and the pharmacy and clinic businesses of Target, sources said.
The offering is just the eighth since the start of 2012 to total $15 billion or more, including deals this year for Actavis Funding ($21 billion on March 3), AT&T ($17.5 billion on April 23), AbbVie ($16.7 billion on May 5), and Charter Communications ($15.5 billion last week), all of which also backed blockbuster M&A plays, LCD data show.
For reference, last year produced just one offering of $15 billion or more, a $17 billion late-year deal for Medtronicon Dec. 1 for its acquisition of Covidien.
Spreads for today’s deal were set firm to guidance ranges established five basis points on either side of midpoints, after an initially proposed three-year floating-rate tranche was dropped from the structure. The deal was set across $2.25 billion of 2018 notes at T+85 (guidance T+90 area from initial whispers in the T+110 area), $2.75 billion of 2020 notes at T+110 (guidance T+115 area from initial whispers in the T+130 area), $1.5 billion of 2022 notes at T+135 (guidance T+140 from initial whispers in the T+155 area), $3 billion of 2025 notes at T+155 (guidance T+160 from initial whispers in the T+170 area), $2 billion of 2035 bonds at T+175 (guidance T+180 area from initial whispers in the T+205 area), and $3.5 billion of 2045 bonds at T+190 (guidance T+195 area from initial whispers in the T+215 area), sources said. Press reports earlier today suggested an order book cover of roughly three times the proposed offering amount.
CVS bonds have traded wider since the acquisition announcements this spring, and continued wider today in the context of high new-issue concessions built into the talk levels. CVS 3.375% notes due August 2024, which printed last August at T+105, traded more than 20 bps wider in May at levels roughly 15 bps above issuance. The issue changed hands on Friday at T+126 as participants braced for today’s offering and in the T+140 area today, trade data show. The company’s 5.3% 30-year notes due December 2043 traded on Friday at date-adjusted levels in the low T+170s and today in the T+185-190 range, or up from pricing at T+145 in December 2013.
Bookrunners for today’s offering are Barclays, BNY Mellon, J.P. Morgan, and Wells Fargo.
All but the proposed 2025 issue are subject to a special mandatory redemption at 101, in the event the Omnicare acquisition is not completed by Aug. 20, 2016. The notes, which are guided to a BBB+/Baa1 profile (stable on both sides), are also subject to ratings-sensitive, change-of-control puts at 101.
The fixed-rate notes are subject to make-whole call provisions. Par calls apply for the 2020 notes from one month prior to maturity, for 2022 notes from two months prior to maturity, for 2025 notes from three months prior to maturity, and for 2035 and 2045 bonds from six months prior to maturity.
CVS in May secured a $13 billion unsecured bridge loan from Barclays in connection with its planned $12.7 billion acquisition of BB/Ba3 Omnicare (NYSE: OCR), including the assumption of roughly $2.3 billion of Omnicare debt. CVS stated at the time that it expected to print “permanent financing” in the form of senior notes and/or term-loan debt prior to the closing of the transaction, which is expected near the end of 2015.
CVS subsequently announced that it would acquire the pharmacy and clinic businesses of Target (NYSE: TGT) for roughly $1.9 billion.
S&P and Moody’s affirmed ratings after the M&A plays. “In our view, the [Target] transaction will allow CVS to expand its pharmacy network and strengthen its retail presence in new markets, while driving incremental sales and prescription volumes,” S&P stated on June 15. In May, it said that the Omnicare deal would not lead to a material change in overall financial risk, “given CVS’ demonstrated ability to reduce debt leverage with excess cash flow.”
However, Moody’s noted on the same day that the rapid-fire acquisition activity left CVS “weakly positioned” in the Baa1 category, though it in May characterized the larger Omnicare play a net credit positive. – John Atkins