Gilead's seven-part M&A bond attracts heavy demand


Gilead Sciences is generating huge investor demand for a new seven-part US dollar bond deal to fund its US$21bn acquisition of Immunomedics.

By William Hoffman

NEW YORK, Sept 23 (IFR) - Gilead Sciences is generating huge investor demand for a new seven-part US dollar bond deal to fund its US$21bn acquisition of Immunomedics.

The M&A deal would fast track Gilead's ambitions to build up a substantial oncology business through Immunomedics' breast cancer antibody drug called Trodelvy.

This is Gilead's first bond offering since 2017, according to IFR data, and that scarcity value and a strong credit story is helping bookrunners build demand to over US$32bn through mid-day, according to an investor and broker-dealers close to the trade.

The biopharmaceutical company is expected to fund the deal with US$6bn of newly issued debt and US$15bn in cash on hand, according to a company press release.

Andrew Dickinson, CFO of Gilead, said during an investor call prior to the deal's announcement that the company would seek "no more" than US$6bn in new debt.

Yet, analysts at CreditSights believe the deal could total US$8bn in size and S&P wrote that the company is looking to raise US$8bn across senior unsecured notes and senior unsecured term loans.

Bookrunners Barclays and Wells Fargo are shopping two floating-rate notes with one and three-year non-call one maturities.

There are also five fixed tranches in three-year non-call one, seven, 10, 20 and 30-year maturities that have guidance of 65bp area, 80bp area, 105bp area, 125bp area and 145bp area - all plus or minus 5bp.

Those guidance levels are inside initial price thoughts set in the area of Treasuries plus 80bp, 110bp, 125bp, 150bp and 165bp, respectively.


Gilead is rated A3/A, but S&P made it clear in a report this week that it intends to downgrade the company by two notches to BBB+ with a negative outlook once the new debt financing is completed.

"Our expectation for the rating reflects our base case for adjusted debt leverage to generally remain in the 2x-2.5x range, significantly above prior levels," S&P wrote in the report.

"We expect to assign a negative outlook following deal close to reflect a material risk for opportunistic mergers and acquisitions to further erode credit measures, especially given the company's need to balance its historically conservative financial policy with other strategic priorities including near-term growth prospects."

Gilead's Dickinson noted that the company's free cash flow, minimal near term maturities and history of deleveraging after previous large acquisitions gives it ample runway to bring down debt.

In the second quarter Gilead reported some US$8.6bn of free cash flow over the last 12-month period (down 10% year-over-year), according to CreditSights. The company has no bonds maturing this year and just US$2.25bn due next year, according to Refinitiv data.

Furthermore, the company was able to deleverage in the wake of an US$11.9bn acquisition of Kite Pharma in 2017 and an US$11bn buyout of Pharmasset in 2011.

Dickinson said that while the company can not rule out large M&A completely, it has no plans to execute such a deal in the foreseeable future.

"We knew a downgrade by S&P was a possibility given their focus on net-debt," Dickinson said.

"This debt composition paired with our free cash flow generation gives us ample flexibility to reduce leverage as appropriate."

Investors have piled in despite those risks, noting this is the company's first issuance since pricing a three-part US$2.25bn bond in 2017 and the first opportunity to take duration at the 30-year part of the Gilead curve since 2015, according to IFR data.

A sparse secondary curve makes new issue concessions hard to calculate, but CreditSights noted that the bonds should price close to AbbVie and Amgen implying only modest tightening from IPTs.

"Our primary concerns as it relates to Gilead are, one, that it continues to see net leverage erosion tied to bolt-on M&A and, two, that its deleveraging trajectory is impaired by setbacks within its pipeline, particularly for earlier stage acquired assets," CreditSights noted in its report.

(Reporting by William Hoffman Editing by David Bell)


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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