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

Moreover, McKinsey said that large pharma and biotech firms often conduct M&A to realign their portfolios — whether because their strategies have changed, and “they are looking to bolster their commercial pipelines or to jettison assets acquired in past deals for which they are no longer the best owner.”

To this end, McKinsey analysts Roerich Bansal, Ruth De Backer, and Vikram Ranade argue that recent U.S. tax reform “may make it more attractive for U.S.–based pharmaceutical companies to divest noncore assets now relative to prior years.”

McKinsey estimated that the after-tax proceeds from a divestiture could increase by about 23% for a typical business, “because of lower taxes on the proceeds to the seller, as well as an increase in valuation resulting from a decline in after-tax cash flows.”

GlaxoSmithKline, for instance, intends to separate its JV with Pfizer as an independent company via a demerger of its equity interest to its shareholders and a listing of the Consumer Healthcare business on the UK equity market.

The British pharma may also sell all or part of its stake in the joint venture in a contemporaneous IPO.

Solid supply and demand dynamics intact

Meanwhile, Pfizer was one of several investment-grade corporate bond issuers Monday to take advantage of the still ultra-low U.S. interest rate landscape to bring new deals to market.

A total of nearly US$15bn of fresh high-grade corporate debt priced, including a long list of financial and industrial deals such as HSBC Holdings’ US$3bn two-part bond, MUFG Union Bank’s US$1.3bn note in two parts, and John Deere Capital Corp’s US$1.5bn three-part bond.

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The issuance also continues to see healthy demand, in large part as improvements in the U.S. economy have been helping lure investors to the yield offered in the primary market – especially those buyers who have been priced out of their local markets or have a dearth of available paper.

The yields on 10-year Japanese and German government bonds were last in the area of -0.002% and 0.166%, respectively, while the yield on the 10-year U.S. Treasury note was last around 2.740%.

Against this landscape, Ron Quigley, head of fixed income syndicate at Mischler Financial, observed a continued tightening of credit spreads. He said that market participants “know that what goes up must come down,” however new issues are “all being bid up until of course, the market comes off, but for now all is fine and dandy in the world of IG Corporate primary markets.”

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The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this ...

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