Teva Pharmaceutical, rated Ba2/BB/BB, launched a bigger-than-expected US$4.5bn-equivalent four part high-yield bond on Wednesday, its first as a junk-rated issuer, one of the banks leading the deal told IFR.
The deal, comprised of euro and US dollar tranches, was initially expected to be US$3.5bn-equivalent.
The two dollar tranches, each US$1.25bn in size, carry six and 10-year maturities and are expected to price at yields of 6% and 6.75%, respectively.
Those levels were tightened in from price talk of 6%-6.25% and 7%-7.25%, respectively, in a sign of strong demand from investors.
The four-year €700m tranche is expected to price at a yield of 3.25% and the seven-year €900m tranche at a yield of 4.50%. Those levels were at the tight end of price talk.
The Israeli multinational pharmaceutical company has been meeting with investors since March 1 in both the US and Europe, and had been hoping to attract interest from investment-grade, high-yield and EM accounts, a banker close to the deal said.
PAYING THE PRICE
As an investment-grade borrower, it raised US$20bn-plus in July 2016 across US dollars, euros and Swiss francs to help fund its acquisition of Allergan Generics.
But those bonds were later hit amid pricing pressure in the US market and competition for some of its generic drugs.
More recently, Teva fell from grace and became a fallen angel following downgrades to junk by all three major rating agencies. This deal is its first high-yield offering following those downgrades.
Yields on the new issue are substantially higher than those paid on its high-grade deal from 2016, IFR data show. A 10-year US$3.5bn trade from that multi-tranche issue, for example, priced with a yield of 3.15%.
That’s less than half of what it will pay on its new bond with the same maturity as a junk borrower - showing just how much a company’s cost of capital can soar when its credit ratings slump.
Proceeds from the new bond issue will be used to fully repay existing US dollar and yen term loans due 2018-2022, the early redemption of existing senior notes due 2018 and 2019 and for general corporate purposes.
Books on the trade close at 10:30am New York time/15:30 GMT, and the deal is expected to price later on Wednesday.
Barclays, Bank of America Merrill Lynch, BNP Paribas, Citigroup, Credit Suisse and HSBC are active bookrunners.
