German pharmaceutical company Bayer’s US$15bn eight-tranche offering in June was one of the biggest ever deals in the US dollar market in 144A/Reg S format and formed a vital part of a complex funding strategy for its purchase of US agrochemical company Monsanto (see Corporate Issuer for more).
At US$66bn, the Monsanto acquisition was the largest outbound M&A transaction by a German acquirer, and the largest all-cash deal ever.
And the bumper deal took an equally huge financing package.
Bayer’s Yankee bond was one of the last pieces in a big funding puzzle that took almost two years to put together.
That was largely because the merger took nearly 21 months to receive full anti-trust approval – making it a supremely well-flagged trade for US bond investors.
When the US dollar bond finally hit the screens, active leads Bank of America Merrill Lynch, Credit Suisse, Goldman Sachs, HSBC, and JP Morgan elected to market only via calls with investors so they could reach as many accounts as possible.
In total, bankers spoke with more than 225 investors over just three days, said Lars Moeller, director in debt capital markets at Credit Suisse.
“I can’t think of another deal that hit so many accounts,” he said.
When the bond finally hit the US dollar market in June – 21 months after the Monsanto deal was first announced – it came with a curveball for investors.
The deal was not SEC-registered, but in 144A/Reg S format. For leads, that was a risk. The 144A format meant the bonds would not be eligible to enter some of the major bond indices, and had the potential to impact demand.
But for Bayer, the risk paid off, with demand totalling US$45bn from 350 investors.
And the lure of the credit meant Bayer didn’t need to pay up for the privilege.
“Usually, there’s a 20bp differential between SEC and 144A deals. But on Bayer, we saw no difference,” Moeller said.
Part of the demand spoke to the rarity value: Bayer had not done a US dollar deal since 2014.
And it was also offering investors a healthy spread. The company had just been downgraded to Baa1/BBB by Moody’s and S&P, but with firm plans to delever and a good track record in that vein.
“Bayer had a clear deleveraging path,” Moeller said. “For investors who liked the credit, here was an opportunity to buy into it at a Triple B spread.”
The book size allowed Bayer to tighten spreads by as much as 20bp from IPTs through to launch levels, paying only 7bp–9bp in new issue concessions. Maturities stretched from three to 30 years.
A jumbo €5bn trade the following day wrapped up the bond financing.