November 8, 2012 / 5:03 PM / 5 years ago

Abbott deal elevates US high-grade market to new heights

Nov 8 (IFR) - The US investment-grade bond market reached new heights last week in terms of what and how much supply it will take, when AbbVie, the pharmaceutical spin-off from Abbot Laboratories, priced the biggest ever deal at US$14.7bn.

The six-part transaction boosted volumes on the day to US$22bn, itself a record for new issuance in a single day.

Despite the deluge of deals, AbbVie had little trouble attracting strong interest from investors, with more than US$41bn of orders placed across the curve for tranches ranging from three-year floating- and fixed-rate notes out to 30-years.

“The market reception was stellar,” said Bill Chase, CFO of AbbVie. “We view this transaction as a great first step for AbbVie in the markets and as a clear sign of investor confidence in the company.”

At a weighted average cost of just over 2%, it was certainly stellar pricing.

Morgan Stanley was advisor on the spinoff and the only underwriter among a large crowd to have a bookrunner position on all six tranches - including sole underwriting status on a US$3bn 10-year.

Other active bookrunners were Barclays, Bank of America Merrill Lynch, JP Morgan, BNP Paribas and Societe Generale.

To get the deal done on a Monday before the presidential election, leads went out with very attractive initial price thoughts that offered about a 15 basis point (bp) pickup to comparables like Amgen and Gilead Sciences.

The juicy spread for a Baa1/A rated deal, along with the ability to get large chunks of bonds in the name attracted the huge order book and ultimately enabled the issuer to price the tranches about 5bp-25bp tighter than where they were first whispered.

The deal was split into US$3.5bn 1.20% 2015s at Treasuries plus 85bp, from initial price thoughts of 95bp area; US$500m of a three year floater at three-month Libor plus 76bp; US$4bn 1.75% five-year notes maturing in 2017 at 110bp, 10bp tighter than its 120bp area price thoughts; and a US$1bn 2.00% six-year maturing in 2018, added during the book-building phase to avoid a huge maturity spike in the fifth year. It was priced at 140bp from 140-145bp guidance.

At the intermediate to long end was a US$3.1bn 2.90% 10-year due 2022 at 130bp, from 150bp area initial thoughts, and a US$2.6bn 4.40% 30-year maturing in 2042 at 160bp, tightened in from whispers in the 185bp area.

The USD14.7bn size beats the previous US$13.5bn record, held by a pair of pharmaceutical deals that have reigned supreme since early 2009. Pfizer priced a US$13.50bn four-part on March 2009, while Roche priced a US$13.5bn deal on February 2009, in addition to a US$3bn one-year floater that doesn’t count toward investment-grade league table volume.

The deal leaves the new company with Abbott’s pharmaceutical business, including the highly lucrative Humira drug, while the “old” Abbott will focus on the company’s medical devices, diagnostics and nutritional product businesses.

AbbVie said in its prospectus that it wanted to raise US$15.7bn, of which it intends to pay Abbott US$13.2bn, which will pay for the tender of all of its existing bonds.

AbbVie will start out with US$7.2bn of cash and short-term investments, and its pro forma debt to EBITDA is expected to be about 2.5 times.

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