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Biotechnology giant Amgen Inc. began talks with investors on Tuesday about a potential jumbo bond deal to help finance its roughly $28 billion acquisition of Dublin-based Horizon Therapeutics, according to the company, investors, analysts and deal documents.
Amgen
AMGN,
and Horizon
HZNP,
announced plans for the mash up in December, with Amgen receiving a $28.5 billion bridge credit facility from Citibank and Bank of America to help aid the transaction.
While the ultimate size of the planned bond deal has yet to be determined, proceeds would be used by Amgen to help fund the acquisition with longer-term debt, plus pay fees related to the acquisition, according to a public document filed Tuesday with the U.S. Securities and Exchange Commission.
“As reported, we are currently conducting fixed-income investor calls in connection with our financing of the Horizon acquisition,” an Amgen spokesperson said, in an email to MarketWatch.
Shares of Amgen were up 0.2% Tuesday, while those of Horizon were 0.1% higher, according to FactSet.
U.S. stocks were choppy on Tuesday, with the S&P 500 index
SPX,
struggling for direction and the Dow Jones Industrial Average
DJIA,
down about 0.2% after January’s consumer-price index showed U.S. inflation that’s been slow to recede despite sharply higher interest rates.
Read: CPI shows U.S. inflation still sticky and slowing grudgingly in January
Mega deals
Amgen’s planned acquisition of Horizon Therapeutics, which focuses on treatments for rare autoimmune and inflammatory illnesses, was the biggest healthcare deal announced in 2022.
The proposed new funding through the issuance of corporate bonds would indicate strong appetite for mega deals on Wall Street, despite higher costs associated with the Federal Reserve’s inflation fight.
The yield on the ICE BofA US Corporate Index was last pegged near 5.3% (see chart), down from a roughly 6% peak in October, but still around levels last seen in the wake of the 2007-2008 global financial crisis.
Investment grade yields top 5%
St. Louis Federal Reserve
Higher rates make it more expensive for households and companies to use debt to buy things on credit.
But even with today’s higher rates, the financing backdrop has been looking brighter for big corporations hungry for mergers, in part because the U.S. economy appears able to absorb higher borrowing rates, without tumbling into a sharp downturn.
“It feels like a pretty good environment versus the fourth-quarter of last year,” said Tom Murphy, head of investment-grade credit at Columbia Threadneedle, by phone. “There is more confidence that you could sidestep a deep and long recession.”
Despite costlier debt, there has been $20 billion of U.S. investment-grade corporate bonds issued this year that relates to mergers and acquisitions, compared with $5.7 billion in the same stretch of 2022, according to Informa Global Markets.
These include recent bonds sold by CVS Health Corp
CVS,
and Philip Morris International Inc.
PM,
according to Informa.
Ultimately, the Amgen bond deal could be the biggest investment-grade issuance since AT&T Inc.
T,
and Discovery Inc. issued $30 billion in debt through a new in media subsidiary named Magallanes in March 2022, according to Informa.
CreditSights analysts said Tuesday they expect the Amgen deal to total $18 billion to $20 billion. “The Horizon acquisition makes strategic sense for Amgen, though it will result in pro forma net leverage of 3.3x (versus 1.8x at YE22),” said the CreditSights team led by Eric Axon, co-head of US high yield research, in a client note.
Horizon didn’t immediately respond to requests for comment.
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