Pfizer Prices US$5bn Bond As Corporate Debt Deluge Continues

By Steven Levine, Senior Market Analyst, Interactive Brokers

New York-based pharma giant Pfizer (NYSE: PFE) sold US$5bn of new corporate bonds Monday in five parts, as the company contributes to a groundswell of issuance amid low U.S. interest rates.

The senior unsecured deal, comprised of maturities ranging from two- to 30-years, attracted decent demand, with spreads on the tranches having compressed anywhere between 10-12bps over the course of their pricing evolution.

It appears most investors’ interest was centered on the shorter-dated notes, likely due to the sensitivity of interest rate risk in the longer end of the maturity spectrum.

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Pfizer said it will peg proceeds from the sale for general corporate purposes, including to refinance, redeem or repurchase existing debt and to repay a portion of its outstanding commercial paper.

The deal, rated ‘A1’ by Moody’s Investors Service and ‘AA’ by Standard & Poor’s, was jointly lead-managed by Barclays Capital, Deutsche Bank Securities, Goldman Sachs, and J.P. Morgan Securities.

Moody's said its ‘A1’ credit rating on the transaction partly reflects Pfizer’s “conservative capital structure,” with nearly US$20bn of cash and investments and gross debt/EBITDA of under 3.0x, including a large U.S. tax liability on foreign earnings.

However, Moody’s analyst Michael Levesque noted that while key products like Ibrance, Eliquis, Xeljanz, and Xtandi “will continue to grow, and the company's late-stage pipeline has good opportunities,” the company’s growth will “lag that of industry peers due to factors including mature product franchises and patent expirations including Lyrica.”

He added that many Pfizer products are “off-patent and declining, grouped into the newly named ‘Established Medicines’ business,” and there is event risk related to both business separations, as well as large acquisitions.

Concocting combinations

Pharmaceutical companies have been generally employing M&A to combat expiring brand-name drug patents, as well as to bolster innovation as technology advances.

In mid-December, Pfizer and British pharma GlaxoSmithKline (NYSE: GSK), for example, agreed to form a joint venture, effectively establishing the largest global consumer healthcare business, with a focus on pain relief, respiratory, vitamin and mineral supplements, digestive health, skin health, and therapeutic oral health.

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