NEW YORK, March 12 (Reuters) - The loan market received another boost this week as drugmaker Abbvie and semiconductor company NXP boosted U.S. M&A volume to $152.7 billion so far this year, including completed and deals in the pipeline.
On the investment grade side, AbbVie is leading the charge backing its $21 billion acquisition of Pharmacyclics with an $18 billion 364-day senior unsecured bridge loan from Morgan Stanley and Bank of Tokyo-Mitsubishi UFJ. The bridge loan, which is the largest financing so far this year, is in the market and is expected to be syndicated among the company’s relationship banks.
“It seems that most of the activity has been on investment grade as opposed to non-investment grade,” a banker said. “The capacity for investment grade is bigger particularly with the regulatory overhaul that’s been going on.”
Frontier Communications has lined up the second-biggest financing with an $11.6 billion bridge loan to fund its $10.5 billion acquisition of wireline assets from Verizon. The two deals have helped push investment grade M&A deal volume to $47 billion in 2015.
The Abbvie bridge loan will fund the cash component of the acquisition alongside cash on AbbVie’s balance sheet. The deal is expected to be replaced with bonds only.
“Healthcare continues to be a hot sector. The Abbvie deal speaks to capacity for acquisition financing. It’s a robust market for these type of deals,” a second banker said.
AbbVie, rated A by Standard & Poor’s and Baa1 by Moody‘s, will pay $261.25 per share in cash and stock, a 13 percent premium to Pharmacyclics stock’s closing price on March 4. Under the acquisition, Pharmacyclics shareholders have the option to be paid 100 percent cash, 100 percent stock or a mix of cash and stock.
NXP is separately backing its up to $40 billion merger with U.S.-based Freescale with $7 billion of loans, which have pushed leveraged M&A loan volume to $70 billion this year.
The loans include a $3.25 billion five-year Term Loan B1 initially paying 325bp over Libor, stepping down to 300bp for net leverage of 2.0 times; a $3.25 billion seven-year Term Loan B2 initially paying 350bp over Libor, stepping down to 325bp for leverage of 2.0 times.
There is also an up to $500 million five-year super senior revolver paying 200bp over Libor, stepping down to 175bp for leverage of 2.0 times and to 150bp for leverage of 1.5 times. The revolver also pays a 25bp commitment fee on undrawn amounts.
Lead arranger and bookrunner Credit Suisse has initially committed 100 percent of the term loans and $112.5 million of the revolver.
The term loans will be used to pay the cash consideration of the offer, refinance Freescale’s existing credit facility, and backstop a consent process on Freescale’s existing bonds.
The revolver will be used for working capital and other general corporate purposes.
The acquisition price puts Freescale’s value at $11.8 billion, with a total enterprise value of $16.7 billion including debt. The companies said that they would finance the merger with $1 billion of cash on hand, $1 billion of new debt and around 115m of NXP ordinary shares.
NXP is rated BB+ by Standard & Poor’s and Ba2 by Moody‘s. (Editing By Chris Mangham and Jon Methven)