LONDON, Nov 21 (IFR) - Corporate borrowers on both sides of
the Atlantic shrugged off concerns about global volatility last
week with pharmaceutical companies leading the charge, although
they had to pay significantly higher premiums.
Bond markets have been badly shaken since the US election,
with Donald Trump's victory accelerating a sell-off in rates
sparked by fears that his expansionary fiscal policies will
weaken US government finances.
But some investment-grade corporates in both the US and
Europe have launched deals partly because things may get even
worse, and partly because they are more sensitive to spreads
than rates - with cash spreads proving more resilient than
"It's a day-by-day market and funding opportunities remain,
but with only limited chances for borrowers to comfortably issue
before the break, the question is how many 2016
corporate funding exercises will now get pushed back into next
year," said Mark Lynagh, head of European corporate DCM at BNP
However, pharmaceutical companies spotted an opportunity,
with the industry relieved that Hillary Clinton, who campaigned
to bring down drug prices, lost the election. Companies such as
Teva, Allergan and Mylan had seen their spreads tighten
following the election.
Mylan (Baa3/BBB-/BBB-) was one of two US pharmaceuticals
issuing reverse Yankees last week, selling a 3bn four-tranche
trade. It followed a 3.6bn triple-tranche deal from Abbvie
(Baa2/A-) last Monday.
Mylan hit the market after withdrawing a potential euro deal
in September, when it came under intense scrutiny for sharply
raising the price of its EpiPen allergy auto-injector. Abbvie's
deal paved the way for its return.
"The market needed a pragmatic US borrower like Abbvie
selling a well-sized bond to give some confidence during the
unstable backdrop," another banker said.
Both companies, though, had to offer generous concessions to
lure investors with their debut euro offerings. The deals came
about 25bp back of their US dollar curves, taking into account
the cross-currency swap.
Bankers thought both companies' decision to issue 12-year
notes as part of their transactions was misguided given the
back-up in rates, with lower-rated Mylan, in particular, coming
in for stick.
While Abbvie and Mylan turned to euros, other healthcare
issuers went to the dollar market instead.
Pfizer sold a US$6bn bond on a difficult day when the
sell-off in Treasuries finally began to impact on the primary
The deal last Monday was slow to price as 10-year Treasuries
reached 2.30% and the 30-year yield nudged over 3% for the first
time since the beginning of the year.
But the bond - Pfizer's largest since 2009 - got done on the
back of a US$14bn book.
"People are seeing this sector rally and wondering how far
it will go now that Trump is President-elect," one investor told
IFR. "Now is the time to get in."
Pfizer's strong book and subsequent performance in secondary
- the bonds tightened on the break - gave other healthcare names
the confidence to come to market.
Abbott Laboratories, for example, finally decided to sell
bonds to finance its US$25bn acquisition of St Jude on Thursday.
The deal had been in the pipeline for months.
The medical device maker issued US$15.1bn through six
tranches. Leads were able to tighten pricing across the curve
after amassing a US$34.6bn order book.
This came despite investor concerns about higher leverage
for a company that could soon drop sharply from its Single A
ratings after targeting both St Jude and Alere for purchase.
Pricing, however, reflected that falling ratings trajectory,
with leads offering investors a new issue concession of 15bp.
The bonds are expected to be rated Baa3/BBB-.
"That's a good sign of the health of the market that a low
Triple B got US$15.1bn done. There were some reservations about
how the market would react to the rates move but getting this
deal through shows it's strong," a lead banker said.
Issuance wasn't just restricted to pharmaceutical companies.
Eastman Chemical became the third US company to issue in euros
last week, with a 500m 10-year and 200m tap of its 550m 1.5%
Like others during week, the borrower had to cough up,
paying a hefty 30bp premium, but was still unable to tighten
guidance from initial price thoughts. The order book size was
undisclosed, which leads said was due to SEC regulations.
A lead bank was bidding the 10-year at 130bp over swaps by
Friday, after pricing it at 125bp on Wednesday.
More deals are in the pipeline, though many in euros, at
least, may get pushed into 2017. "This year could set a record
for the number of deals that have to get booted into the
following year," said one banker.
Corporate treasurers will be cognisant of commodity trader
Louis Dreyfus, which pulled a five-year euro deal on Thursday,
blaming a sharp increase in funding costs on volatile market
(Reporting By Laura Benitez and Hillary Flynn, editing by
Julian Baker, Matthew Davies and Sudip Roy)