UPDATE 4-Drugmaker Roche sells record $16 bln bond issue

(Recasts lead. Updates with bond sale, record size)

By Walden Siew and Jane Baird

NEW YORK/LONDON Feb 18 (Reuters) - Swiss drugmaker Roche on Wednesday sold a record $16 billion in debt to help finance its $42 billion hostile offer for Genentech, drawing strong demand from investors hungry for high-quality bonds.

The sale was the largest U.S. dollar-denominated corporate bond sale in history, topping the $10.99 billion sold by General Electric Capital Corp in 2002, according to Thomson Reuters data.

The proceeds will help Roche (ROG.VX) finance the purchase of the 44 percent of U.S. biotechnology company Genentech DNA.N that it does not already own, as well as refinance existing Genentech debt, a source close to the company said.

The sale was originally marketed at about $10 billion. The increase in the size of the deal suggests some pent-up demand in the midst of a year-long U.S. recession and global credit crisis. The sale would be the biggest health-care bond sale ever, according to Thomson Reuters data.

"It's a massive issue, they're highly rated and they're coming at prices which in more normal times would be exceedingly wide," said Scott MacDonald, head of research at Aladdin Capital in Stamford, Connecticut.

Roche is rated "Aa1" the second-highest rating, by Moody's Investors Service, and "AA-minus," or two notches lower by Standard & Poor's. Moody's has Roche on review for a downgrade.

"In these kinds of markets these are the kinds of issuers that can issue," MacDonald said. "You have a company coming in and doing $16 billion, double-A rated and trading over 300 basis points. I don't think that's business as usual; it's a sign of the times."

Roche spokesman Daniel Piller confirmed the company was selling the bonds but declined further comment. The company has said it plans to use a combination of its own funds, bonds, commercial paper and bank financing for the Genentech deal.

The surprise hostile offer for Genentech, at a price below Roche's original rejected bid, reflects tougher financing conditions and a drop in the U.S. group's shares. For more see [ID:nLU322984].

One source familiar with the situation said last week that Roche was likely to be looking for about $10 billion from the bond market and a $25 billion loan from a syndicate of 12 banks -- supplemented by $7 billion of its own cash -- to pay for Genentech. [ID:nLC834002]

According to a source familiar with the sale, it included:

-- $3 billion in one-year floating-rate notes with a coupon rate 1.00 percentage point over the three-month London interbank offered rate;

-- $750 million in two-year floating-rate notes with a coupon rate 2.00 percentage points over three-month Libor;

-- $2.5 billion in 3-year notes yielding 3.35 percentage points over U.S. Treasuries;

-- $2.75 billion in five-year notes yielding 3.35 percentage points over Treasuries;

-- $4.5 billion in 10-year notes yielding 3.45 percentage points over Treasuries; and

-- $2.5 billion in 30-year bonds expected to yield 3.65 percentage points over Treasuries.

The joint lead managers on the sale are Banc of America Securities, Citigroup Global Markets and JPMorgan. (Additional reporting by Dena Aubin; Editing by Leslie Adler)