IFR International - 08.09.2018

26 International Financing Review September 8 2018

Cigna US$20bn M&A bond

lifts high-grade

Little concession required despite large size

US health insurer CIGNA was flooded with

investor demand for its US$20bn bond deal

on Thursday to help finance its purchase of

Express Scripts, giving a big shot of

confidence to the high-grade market that

has seen one of its toughest periods in

years.

Order books exceeded US$68bn for the

10-part trade - the second-largest US dollar

investment-grade bond deal this year,

topped only by the US$40bn M&A bond

sold by CVS Health in March - even before

guidance was announced.

It helped push high-grade volumes for

the week to US$56.6bn - the busiest week

of the year so far and the third-busiest

week of all time, according to IFR data.

The strong reception meant Cigna paid

little to nothing in new issue concessions

as spreads across the tranches were

tightened by 15bp-18bp from initial price

thoughts.

It had been viewed as a litmus test for

M&A-related issuance in the high-grade

market after a tough first half that

brought bouts of volatility and negative

returns.

But the second half has been better with

total returns now back in positive territory

and demand for the asset class on firmer

footing.

The success of the Cigna deal, some said,

bodes well for other expected M&A

financings poised to hit the market in

coming months, including Takeda

Pharmaceutical’s US$62bn purchase of

London-listed rare disease specialist Shire.

Japan’s largest drugmaker put a

US$30.85bn bridge facility in place for the

deal in May, which is expected to be

replaced through a combination of long-

term debt, hybrid capital and available

cash.

“The market was set up for some supply

coming out of the gate, and there are still

some large M&A transactions that will be

coming in the second half of the year,”

Brian Kennedy, co-portfolio manager of

multi-sector institutional strategies and

mutual funds at Loomis Sayles, told IFR.

“We are off to a good start.”

ALMOST THERE

The Cigna bond was issued under HALFMOON

PARENT, was rated Baa1/A-/BBB-, and offered

maturities between 18 months and 30

years in fixed and floating-rate format.

Its largest tranche - the US$3.8bn 10-year

• priced at Treasuries plus 152bp, or
  roughly flat to Cigna’s existing curve.
  But some investors said the best pricing
  comparable was the US$40bn CVS bond
  from March, which financed the
  acquisition of Aetna. CVS is rated Baa1/BBB.
  CVS has been one of the year’s better
  performing bonds. It has a similar business
  to the new Cigna/Express Scripts tie-up and
  is also a more liquid comparable, one
  investor said.
  CVS’s 4.3% 2028 was trading at a
  G-spread of around 148bp on Thursday
  morning when the new Cigna deal was
  officially announced.
  Cigna did include some protections for
  itself, as the acquisition is not expected to
  close until the fourth quarter.
  Clauses in the bond documentation allow
  it to buy back all of the tranches - with the
  exception of the 30-year - at a cash price of
  101 plus accrued interest if the acquisition
  does not close by September 4 2019.
  Cigna shareholders voted in favour of
  the acquisition late last month, but the
  deal still needs clearance from antitrust
  authorities, Reuters reported.
  That was expected after activist investor Carl
  Icahn walked away from his 11th-hour attempt
  to rally shareholders to reject the deal.
  The US Department of Justice is still
  conducting an antitrust review of the
  combination that is not expected to close
  until later this year.
  The Wall Street Journal, citing sources,
  said last week the DoJ was nearing
  antitrust approval for the deal, which
  could come as soon as the next few weeks.
  The other tranches from the Cigna deal
  included a US$1bn 18-month FRN at three-
  month Libor plus 35bp, a US$1.75bn
  two-year at Treasuries plus 60bp, a
  US$1.25bn three-year at Treasuries plus
  70bp, a US$1bn three-year non-call one
  FRN at three-month Libor plus 65bp, a
  US$3.1bn five-year at Treasuries plus
  102bp, a US$700m five-year FRN at three-
  month Libor plus 89bp, a US$2.2bn
  seven-year at Treasuries plus 132bp, a
  US$2.2bn 20-year at Treasuries plus 177bp
  and a US$3bn 30-year at Treasuries plus
  187bp.
  Bank of America Merrill Lynch, JP Morgan,
  Morgan Stanley and Wells Fargo were the
  active bookrunners on the deal.
  Natalie Harrison, Joy Wiltermuth

WEEK IN NUMBERS

1.04%

n THE YIELD ON ITALY’S TWO-YEAR

BONDS RALLY OVER THE PAST WEEK

AFTER DEPUTY PRIME MINISTER MATTEO

SALVINI MODERATED HIS TONE ON THE

COUNTRY’S UPCOMING BUDGET

US$2bn

n THE AMOUNT OIL AND GAS COMPANY

ENI RAISED LAST WEEK AS IT BECAME THE

FIRST ITALIAN COMPANY TO ISSUE IN THE

US HIGH-GRADE MARKET THIS YEAR

94

n THE PRICE THAT RALLYE’S €300m 5%

BOND DUE NEXT MONTH FELL TO ON

THE BID SIDE LAST WEEK. RALLYE IS THE

BIGGEST SHAREHOLDER OF FRENCH

SUPERMARKET GROUP, CASINO

US$68bn+

n THE ORDER BOOK FOR HEALTH INSURER

CIGNA’S US$20bn 10-TRANCHE BOND LAST

WEEK, WHICH WILL HELP FINANCE ITS

PURCHASE OF EXPRESS SCRIPTS

€442m

n THE AMOUNT THE ECB BOUGHT

THROUGH ITS CSPP IN TRADES SETTLED

IN THE WEEK UP TO AUGUST 31

In total, it has bought €166.507bn

0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

%

1/8/1

8

3/8/1

8

5/8/

18

7/8/189/8/

18

11/8/1

8

13/8/1

8

15/8

/18

17/8/1

8

19/8

/18

21/8/1

8

23/8/1

8

25/8

/18

27/8/1

8

29/8/1

8

31/8

/18

2/9/184/9/186/9

/18

93

95

97

99

101

103

105

2/

1/18

2/2/

18

2/3/

18

2/4/

18

2/5/

18

2/6/182/

7/^18

2/8/

18

2/9/

18

Source: MarketAxess

6 Bonds 2250 p25-55.indd 26 07/09/2018 19:29:58