Industrial conglomerate 3M took center stage in the US high-grade market on Monday after launching a US$3.25bn four-part bond sale to fund its acquisition of medical device company Acelity.
The company offered three, five, 10 and 30-year notes and tightened pricing 10bp-17bp after launching at Treasuries plus 37.5bp, 65bp, 90bp, and 130bp, respectively.
Valued at US$6.7bn including debt, the Acelity purchase is the company’s largest ever M&A deal. And while the deal is seen rounding out 3M’s healthcare offerings, it also poses some leverage challenges against a difficult global backdrop.
In particular, the US-China trade war is having a negative impact on 3M sales at a time when most analysts are pessimistic the two countries can come to an agreement.
3M is rated A1/AA- by Moody’s and S&P, respectively, but the ratings could be challenged in this environment, CreditSights note.
“We do not have a high conviction of where ratings for this firm will settle especially with break-ups being in vogue and many capital goods credits moving to the Triple B tier,” the research firm said.
Following the announcement of the acquisition S&P placed 3M’s AA- rating on a negative outlook.
S&P expects 3M’s leverage ratio to rise to mid two-times from a high one-time level even with solid free cash flow of US$5bn-US$6bn annually.
“Our projected leverage levels leave the company with little to no flexibility for additional debt-funded acquisitions, greater-than-expected shareholder returns, further operating underperformance, or other cash outflows,” S&P wrote in its May report.
Goldman Sachs, Bank of America Merrill Lynch, Morgan Stanley and Wells Fargo are leading the deal, which is expected to price later on Monday.
