Siemens funds Varian acquisition with US$10bn USD bond

4 min read
Americas, EMEA
William Hoffman

German industrial conglomerate Siemens returned to the US high-grade primary Tuesday for the first time since 2017 to launch a new seven-part US$10bn dealto fund its acquisition of Varian Medical Systems.

The US$16.4bn all-cash acquisition was announced in August and will combine Siemens Healthineers AG with the California-based radiation oncology treatments company Varian. Siemens took out a €15.2bn bridge loan last year underwritten by JP Morgan, according to LPC.

The company, rated A1/A+, has always issued in size when it comes to the US dollar market, but Tuesday's bond was its biggest ever. In 2017, it raised US$7.5bn in a seven-part transaction. Since its US dollar debut in 2006 it has never issued less than US$5bn in a single trip to the market, according to IFR data.

Siemens launched a US$1.24bn 2-year at 30bp over Treasuries, a US$1.5bn three-year at 40bp over, a US$1.75bn five-year at 55bp over, a US$1.25bn seven-year at 65bp over, a US$1.75bn 10-year at 75bp over and a US$1.5bn 20-year at 80bp over. Spreads tightened by 25bp-35bp in from initial price thoughts in the area of US Treasuries plus 55bp, 65bp, 80bp, 90bp, 100bp, and 115bp, respectively. Siemens also launched a US$1bn three-year floater at 43bp over the secured overnight financing rate.

Unusually, Siemens did not include a 30-year tranche for the jumbo trade, which could be due to rising long-end Treasury rates that make issuing that far out the curve more expensive for issuers. The 30-year rate closed at 2.23% on Monday, up 57bp on the year.

Additionally, companies are finding attractive rates at the 20-year part of the curve where such securities are pricing off of the corresponding 20-year treasury as opposed to off the 30-year rate as companies have historically done. For example, given where Treasury and credit curves are right now some companies could wind up paying 10bp-30bp more for a 30-year bond than they would for a 20-year, according to Jason Shoup, head of global credit strategy at Legal & General Investment Management America.

Indeed, Siemens was able to tighten the spread on the 20-year by 10bp more than any other tranche it offered.

"CFOs aren’t ignoring that because from the perspective of a management team issuing a 20-year bond versus a 30-year bond, both are still long term capital and if you can get a 30bp cheaper coupon on your 20-year bond than your 30-year bond I think a lot of management teams will take that option," Shoup said. "The 20-year bond is having its day in the sun as that message has gotten out to the syndicate teams and issuers that the cheapness that has been at that point in the past is driven out."

The company's outstanding 4.2% March 2047s that priced back in 2017 were last trading in the 85bp-90bp context, according to MarketAxess data. However, because the bonds were issued four years ago there is little liquidity in its outstanding curve.

Siemens new issuance seemed to offer some concession over a similarly rated US industrial name such as 3M, A1/A+, which has a 3.05% 2030 that priced a year ago trading at a G spread of around 61bp, according to MarketAxess data.

Citigroup, JP Morgan, Mizuho, Morgan Stanley, Royal Bank of Canada and Toronto Dominion are lead bookrunners on the Seimens trade.

Updated story: Adds launch details and comp.