Israel-headquartered Teva Pharmaceutical Industries’ punchy US$33.75bn loan backing its acquisition of Allergan’s generics business proved that for the right borrower the loan market could still provide multi-billion dollar bridges regardless of capital market volatility.
Thanks to its global operations and its Israeli domicile, Teva was able to turn to the European loan market to achieve European-style financing and far cheaper pricing than it would have achieved in the US, where financing for the healthcare sector had become more difficult amid political pressure over increased drug costs and tax issues.
“Over the past few years the company has been very acquisitive. It has been doing larger and larger deals, and this is its largest-ever deal,” said James Horsburgh, managing director in HSBC’s capital financing, global banking and markets team.
The background to the acquisition had its own dynamic. In April 2015, Teva launched a US$40bn unsolicited bid for generic drugmaker Mylan – a deal that received full credit approval for a financing from banks – before dramatically withdrawing its proposal and announcing its US$40.5bn acquisition of Allergan Generics on July 27 2015.
Teva moved quickly to secure the initial underwriting of the loan via Bank of America Merrill Lynch, Barclays, BNP Paribas, Citigroup, Credit Suisse, HSBC, Mizuho, Morgan Stanley, RBC and SMBC.
The financing initially comprised a US$27bn bridge loan for one year plus two six-month extension options; and a one-year US$6.75bn bridge to equity that was kept with the underwriting banks.
Launching into wider syndication in October 2015 (and not signed until November 19), the bridge loan was reduced by US$5bn through the addition of a US$2.5bn three-year term loan and a US$2.5bn five-year term loan to the financing structure.
Teva took advantage of high levels of liquidity in the European market and achieved very competitive pricing on the loans. The bridge paid 40bp over Libor for the company’s BBB/Baa2 rating, while the three-year term loan pays 112.5bp and the five-year term loan pays 125bp.
“[Teva] should be very pleased with the pricing they achieved,” Horsburgh said.
The loan garnered strong support from the market in both Europe and the US, with a total of 12 banks joining the 10 underwriters.
Success also followed for the subsequent bridge loan take-outs. The equity bridge was rapidly replaced through a US$6.75bn equity and equity-linked raise in December 2015, while the company raised more than US$20bn across three currencies – US dollars, euros and Swiss francs – in July 2016, ahead of the closing of the acquisition on August 2 2016.