BMY Bristol Myers Squibb Co

By Sam Goldfarb 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (May 8, 2019).

Bristol-Myers Squibb Co. sold $19 billion of bonds on Tuesday, seizing on low interest rates to help fund its blockbuster acquisition of Celgene Corp.

Coming off solid first-quarter earnings, Bristol-Myers issued bonds with maturities ranging from 1 1/2 to 30 years, investors said. The $19 billion total amount was the highest for a U.S. corporate bond sale this year and the largest since Comcast Corp. sold $27 billion of bonds in October to finance its purchase of Sky PLC, according to Dealogic.

Like many other companies that have executed bond sales of at least $10 billion in recent years, Bristol-Myers had little trouble placing its debt, investors and analysts said.

When the drug company announced in early January a deal to buy rival Celgene for roughly $74 billion, demand for corporate debt was soft, leading to higher potential borrowing costs for companies. Since then, however, Treasury yields have fallen and investors have demanded a smaller amount of extra yield, or spread, to hold corporate bonds over government debt.

While Bristol-Myers has historically been a conservative borrower, it is now wagering that acquiring Celgene will expand its pipeline of drugs and give it more leverage in negotiations with insurance companies and pharmacy-benefit managers that determine reimbursement and coverage. The acquisition is expected to close in the third quarter.

Before the bond sale, some investors said the relatively small amount of existing Bristol-Myers bonds in circulation would help the company sell its debt.

The new bonds will "give investors an opportunity to buy a higher-quality name in the pharmaceutical sector that will be much more liquid than it has in the past," said Bob Summers, a portfolio manager at Neuberger Berman.

As is typical for an investment-grade bond sale, Bristol-Myers' underwriters initially guided the new bonds at relatively elevated spreads and then brought them down later in the day. Its new 10-year bonds were ultimately sold at 99.175 cents on the dollar with a 3.4% coupon. That translates to a 1.05 percentage-point spread to Treasurys -- a modest premium to its existing bonds -- down from early guidance of a roughly-1.2-percentage-point spread.

Analysts at the research firm CreditSights have projected that Bristol-Myers's ratio of debt to earnings before interest, taxes, depreciation and amortization, or Ebitda, would rise to 3.2 times from 0.7 times after the acquisition. They also estimate the company would be able to generate $14 billion to $16 billion of annual free cash flow over the next three years, allowing it to cut its debt-to-Ebitda ratio roughly in half during that span.

Even with the increase in debt, Moody's Investors Service indicated last week that it would likely downgrade Bristol-Myers' credit rating only one notch to A3 from A2. That sets the company apart from many other companies that have settled to the bottom rung of the investment-grade credit ladder, a trend that has raised concern about downgrades to junk if there is an economic downturn.

Both Bristol-Myers and Celgene have had their challenges in recent years. Bristol-Myers has lost its advantage in immunotherapy treatment of lung cancer to rival Merck & Co., while Celgene has struggled to find new products to offset the looming patent expiration of its top-selling cancer drug, Revlimid.

Still, Bristol-Myers last month reported higher-than-expected revenue in the first quarter, helped by stronger demand for its immunotherapy drug Opdivo and blood thinner Eliquis.

Bristol-Myers' bond sale will boost the 2019 tally of investment-grade bond issuance, which has matched last year's pace but fallen below the record-setting standards of other recent years.

Through Monday, nonfinancial companies had sold $272 billion of investment-grade bonds in the U.S. That compares with $270 billion over the same period a year earlier and $304 billion in 2017, when issuance ultimately reached a record $847 billion.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

(END) Dow Jones Newswires

May 08, 2019 02:47 ET (06:47 GMT)

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