June 27, 2019 / 4:35 PM / 4 months ago

CORRECTED-US loan market ready to feast on AbbVie's jumbo US$38bn bridge loan

(Corrects rating and opening pricing in paragraph 10)

By Michelle Sierra

NEW YORK, June 27 (LPC) - A US$38bn bridge loan backing US biopharmaceutical company AbbVie’s US$63bn bid for Botox-maker Allergan, and the additional bank business the merger will generate, is expected to be welcomed with open arms by a robust US loan market starved of new lending opportunities.

“Everybody is trying to get their feet in, trying to be part of it,” a senior banker said.

The fully underwritten 364-day bridge loan backing the acquisition is the fourth-largest US dollar bridge loan on record, according to LPC, a unit of Refinitiv. Along with Bristol Myers’ US$33.5bn bridge loan for Celgene, this is the second mega-bridge loan in the healthcare sector in 2019.

Morgan Stanley and MUFG are leading the deal that will be used in conjunction with AbbVie’s existing cash to fund the cash portion of the acquisition. Morgan Stanley is administrative agent on the bridge loan.

The lead banks are expected to de-risk quickly by tapping AbbVie’s existing bank group, which is typical with such large lending commitments. A few banks will join at a high level, with a retail round expected to follow.

AbbVie has said it intends to refinance the bridge loan through a permanent financing comprising unsecured bonds and a new term loan, according to a filing with the US Securities and Exchange Commission.

The take-out strategy of the bridge loan could consist of a term loan or a combination of loans and bonds in the spirit of financing backing Bristol-Myers' US$74bn purchase of Celgene. That deal also was led by Morgan Stanley and MUFG.

The bridge loan might be swapped by a large-sized term loan A (TLA) component that would come on the heels of the US$8bn in TLAs that partially took out the Bristol-Myers bridge loan, and evidenced the market’s newfound enthusiasm for funded paper.

Bristol-Myers' purchase of Celgene is the biggest-ever healthcare acquisition.

At current ratings of Baa2/BBB+, pricing opens at 112.5bp over Libor with a 10bp commitment fee, according to the SEC filing.

READY TO LEND

With most of the investment grade loan volume in the second quarter of 2019 consisting of refinancings of existing credits, the AbbVie loan is expected to be well-received as the market has been awaiting opportunities to put money to work.

Investment grade M&A lending for the first half of the year, excluding AbbVie, totaled US$120.08bn, down 16% compared to US$143bn in the first half of 2018.

It is still unclear whether the new loan will rouse the market enough to bring more new-money business into the US investment grade space.

“It’s great for the market. It’s certainly great for Morgan Stanley and MUFG," the senior banker said. “But these things usually take a really long time to develop. Unless something has been developing over time.”

A deal of this size is also a testament to the health of the market, several bankers said.

“That it’s getting done is a good sign,” the senior banker said. “Because if the market weren’t healthy such a deal couldn’t get done.”

Refinancing activity is expected to continue in the third quarter, but AbbVie is already suggesting a potentially busy summer.

“The third quarter will start off that way. Refinancing activity in July and August, then the summer vacations. Abbvie will help boost volumes,” a second banker said.

AbbVie expects to generate significant annual operating cash flow to support a debt reduction target of between US$15bn to US$18bn before the end of 2021, enabling a continued commitment to a Baa2/BBB or better credit rating, AbbVie said. The company expects further deleveraging through 2023.

The acquisition is expected to close in early 2020. (Reporting by Michelle Sierra. Editing by Leela Parker Deo and Jon Methven)

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