AbbVie begins mega bond sale to finance Allergan acquisition

AbbVie Inc. is selling what could be $28 billion of bonds to help finance its acquisition of Allergan Plc, which would be the largest bond sale this year.

The drugmaker is capitalizing on some of the cheapest borrowing costs of the year, with risk premiums over Treasuries at the lowest level since last October. That should encourage more borrowers to come forward, with investment-grade syndicate desks projecting another $17 billion in sales this week on top of AbbVie's expected offering.

AbbVie's sale would easily top the charts as the biggest bond sale this year, and could crack the five largest of all time. The offering may come in as many as 10 parts, with the 30-year security possibly yielding around 2.1 percentage points above Treasuries, according to people with knowledge of the matter, who asked not to be identified as the details are private.

The initial talk only suggests a premium of 0.05 to 0.1 percentage point over yields on AbbVie's outstanding debt, according to data compiled by Bloomberg. Investors have already placed $44 billion in orders, with the majority skewed to maturities of at least 10 years, the people said.

AbbVie agreed to buy Allergan in June for $63 billion in one of the largest pharmaceutical deals this year. It should bring much-needed diversity to the acquirer's lineup, as AbbVie's cornerstone drug Humira, which treats arthritis, has been facing more competition, especially in Europe. U.S. antitrust officials are still reviewing the deal, which the companies expect will close early next year.

The deal is expected to take the combined company's debt to more than three times a measure of its earnings, credit raters have said. Still, Moody's Investors Service has left its rating on AbbVie unchanged at two levels above speculative grade, as the transaction should generate significant free cash flow. S&P Global Ratings, however, said it will likely cut AbbVie one level to BBB+, three levels above junk.

Management has reiterated its intention to pay down debt, to achieve a ratio of net debt to Ebitda - earnings before interest, tax, depreciation and amortization - of 2.5 times by the end of 2021. Further deleveraging through 2023 is possible, Chief Financial Officer Rob Michael said on an earnings call earlier this month.

Morgan Stanley, Bank of America Corp. and Barclays Plc are managing the bond sale, the person said.

-With assistance from Brian Smith.

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