LONDON, June 17 (Reuters) - U.S. medical device maker Medtronic Inc is raising a $16.3 billion senior unsecured bridge loan to finance its $42.9 billion acquisition of Dublin-based Covidien Plc, banking sources said on Tuesday.
Bank of America Merrill Lynch (BoAML) is the sole initial bookrunner of the deal, which is one of the bank's biggest loan underwriting commitments to date, and is also acting as the sole lead arranger and sole bookrunner, a senior banker close to the deal said.
Medtronic agreed to buy Dublin-based Covidien Plc and shift its executive headquarters to Ireland on June 15 in the latest move by U.S. firms to access lower corporate tax rates abroad.
Medtronic was not immediately available for comment.
BoAML's $16.3 billion sole underwriting is bigger than its $15.25 billion share of the $61 billion bridge loan that backed Verizon's acquisition of Verizon Wireless in September 2013, which was underwritten by four banks.
BoAML was also the sole underwriter of a $4 billion loan for Swiss engineering group ABB's acquisition of US electrical connectors manufacturer Thomas & Betts in March 2012.
A sole underwriting of this size shows confidence in liquid debt markets, which are giving rise to hopes of an M&A renaissance, several bankers said.
"The credit markets are very strong at the moment, which gives comfort around the debt capital markets takeout and the bank market is strong and deep, which gives comfort on the ability to syndicate the risk if needed," the senior banker said.
The deal has been structured in two tranches. One tranche is a bridge loan to bond issues, which are expected to be issued quickly, as is typical of acquisition bridge financings.
The second tranche is a bridge loan to cash which will allow Metronic to source cash from different parts of its business, the senior banker said. It is not yet clear if either tranche will be syndicated.
Medtronic needed the full $16.3 billion underwriting to show certainty of funds to the Irish stock exchange, the senior banker said.
The $42.9 billion cash-and-stock transaction values the global healthcare technology and medical supplies provider at $93.22 per share, representing a 29 percent premium to Covidien's closing stock price of $60.70 on Friday, Medtronic said.
Medtronic will pay $35.19 in cash plus 0.956 shares of Medtronic stock for each Covidien share. It will also assume approximately $5 billion of Covidien debt, according to a company presentation.
Moody's Investors Service affirmed Medtronic's A2 rating on Monday, and put Covidien's Baa1 rating on review for upgrade.
Covidien shareholders will own approximately 30 percent of the combined company, Medtronic said. The combination is expected to result in at least $850 million of annual pre-tax cost synergies by the end of fiscal year 2018.
Medtronic said it would keep its operational headquarters in Minneapolis and pledged $10 billion in U.S. technology investments over the next 10 years. (Editing by Christopher Mangham)