The US pharmaceuticals group AbbVie sealed one of the largest US corporate bond deals on record on Tuesday to finance its $83bn takeover of rival Allergan.
AbbVie borrowed $30bn from investors clamouring for investment-grade debt, in a bond offering split across 10 different maturities from 18 months to 30 years.
The deal was the biggest bond offering since the healthcare and drugstore operator CVS raised $40bn in March last year to fund its takeover of the insurer Aetna. It ranked as the fourth-largest bond sale ever completed, also trailing a $46bn offering from the brewer Anheuser-Busch InBev in 2016 and the record $49bn raised by Verizon in 2013 to buy the stake in its wireless unit it did not already own.
Hearty demand for the AbbVie offering underscored investor appetite for the riskiest, highest-yielding bonds in the investment-grade category. Orders came in for more than twice the total on offer, according to people familiar with the sale.
High demand also allowed AbbVie’s bankers to reduce the company’s likely borrowing costs versus initial guidance. Its 10-year note carried a premium above US Treasury bonds of just 130 basis points, down from the 150bp originally mooted.
Mark Jackson, a portfolio manager at Diamond Hill Capital Management, said the demand showed investors were “starved” of yield. “There are clearly some risks but it’s a good quality company with cash flow to pay down debt,” he said.
Despite the hefty borrowing, AbbVie is expected to cling on to its investment-grade bond rating. The company has committed to cut its leverage from 3.4 times its earnings before interest, taxes, depreciation and amortisation to 2.5 times by the end of 2021, according to people familiar with the company’s plans.
The borrowing lifts Abbvie’s total debt to about $90bn, making it one of the most indebted companies in the world and further increasing the size of the market for triple-B rated bonds, which sit just above junk status.
Andrew Forsyth, a portfolio manager at BNP Paribas Asset Management, said investors were of the view that AbbVie would cut its debt over time. “On a megadeal it really depends on the prospects for the companies that are combining. In this case it’s reasonably positive,” he said.
Richard Gonzalez, chief executive of AbbVie, is working to shift the drug giant away from its blockbuster inflammatory treatment Humira, which generated more than 60 per cent of the company’s $33bn of revenues last year but is now facing competition from new generic medications.
Mr Gonzalez told analysts earlier this year that “Humira is essentially buying the assets that replace it over the long term”.
With Allergan, AbbVie will add Botox as well as a host of drugs that are used in eyecare, gastroenterology and to treat the central nervous system to its portfolio.