Locking in the long end
Eli Lilly redefined what is possible at the long end of Europe’s corporate bond market with a near €2.1bn-equivalent four-part deal that included both 30 and 40-year euro notes, allowing it to lock in ultra-low coupons and refinance more expensive US dollar debt.
The 40-year bond marked the first euro corporate benchmark issued in that maturity since 2007 and the overall deal was the first ever instance of a corporate bringing 30 and 40-year euro tranches together in the same transaction.
The offering also included the issuer’s first sustainability bond, a 12-year euro, and its inaugural sterling bond, a 22-year, tapping into the key themes of 2021 of duration, demand for ESG assets and the greater use of the UK market by non-domestic corporates.
The deal was timed to near perfection with the US pharmaceutical company deciding to strike in early September, following the summer lull in issuance, and before rates volatility made life much tougher for syndicate desks.
“They captured almost the lows of the year in terms of outright rates,” said Janusz Nelson, head of European corporate debt syndicate at Citigroup.
At the start of September, the iBoxx euro non-financials index was yielding 0.44%. By the end of that month it had risen to 0.57%, according to Refinitiv.
The main purpose of the deal was to lock in the significantly lower coupons available in Europe to finance a tender offer for US dollar bonds.
The euro segment of the transaction consisted of a €600m 0.5% 2033 sustainability bond, and €500m 1.125% 2051 and €700m 1.375% 2061 conventional notes.
“It is worth looking at those fixed coupons. On the 40-year it was 1.375%. I suspect that at a lot of points in the next 40 years that is going to look like quite good value tax-deductible funding,” said Mark Lynagh, co-head of debt markets EMEA at BNP Paribas.
For comparison, the last 40-year dollar bond that Eli Lilly issued came with a coupon of 2.5%.
“There was a 25bp fixed-rate difference between the 30s and 40s. Most borrowers would happily take 25bp of additional fixed cost for an additional 10 years of duration at any point [in the curve],” said Lynagh.
Under normal circumstances, the 30-year bond would have drawn the most attention given the limited supply in the tenor. There had just been three in the euro corporate market in 2021 prior to Eli Lilly. However, a 40-year tenor is an even rarer beast.
Eli Lilly also sought duration in the sterling market, where it issued a £250m 1.625% September 2043 note.
Bank of America (sustainability structuring agent), Barclays, BNP Paribas, Citigroup and Deutsche Bank were the bookrunners.
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