Valeant plans $15.15 billion of term loans and notes for Salix buy

By Sara Rosenberg

New York, Feb. 23 – Valeant Pharmaceuticals International Inc. expects to get $5.55 billion of incremental term loan debt and issue $9.6 billion of senior unsecured notes to fund its acquisition of Salix Pharmaceuticals Ltd. for $158 per share in cash, or a total enterprise value of about $14.5 billion, according to an 8-K filed with the Securities and Exchange Commission on Monday.

The term loan debt is split between a $1 billion incremental five-year term loan A and a $4.55 billion seven-year incremental term loan B.

Of the total term loan B amount, $2.6 billion will be delayed-draw for 60 days from the closing date.

Pricing on the incremental term loan A is expected at Libor 225 basis points, with step-downs based on leverage, and pricing on the term loan B is expected at Libor plus 350 bps with a 0.75% Libor floor.

Backing the notes is a commitment for a $9.6 billion one-year bridge loan priced at Libor plus 575 bps, increasing by 50 bps after 90 days and every 90 days thereafter until it hits a specified cap. There is a 1% Libor floor.

The plans to finance the acquisition with incremental term loans and the notes are based on the company’s ability to amend its existing credit facility, the filing said.

If the amendment is not obtained, the company will need to refinance its existing credit facility and has, therefore, received a backstop commitment for a $11.7 billion credit facility consisting of a $2.75 billion five-year term loan A, a $6.95 billion seven-year term loan B, of which $2.6 billion will be delayed-draw for 60 days from the closing date, a $1.5 billion seven-year euro equivalent term loan B and a $500 million five-year revolver.

Pricing on the backstop term loan A and revolver is expected at Libor plus 250 bps with step-downs based on leverage, and pricing on the backstop term loan B is expected at Libor plus 375 bps with a 0.75% Libor floor.

Whether the incremental debt is used or the backstop commitment is used, amortization on the term loan A is 5% in year one, 10% in year two and 20% in years three, four and five, and amortization on the term loan B is 1% per annum.

Additionally, the term loan B debt will have 101 soft call protection for six months in both scenarios.

Also, if the amendment is not obtained, the company will issue $550 million of senior secured notes, $500 million of euro equivalent senior secured notes, $8.35 billion of senior unsecured notes and $1.4 billion of euro equivalent senior unsecured notes.

The notes are backed by a commitment for a $1.05 billion one-year secured bridge loan priced at Libor/Euribor plus 425 bps with a 1% floor and a $9.75 billion one-year unsecured bridge loan priced at Libor/Euribor plus 575 bps with a 1% floor. Spreads on the bridge loans will increase by 50 bps after 90 days and every 90 days thereafter until it hits a specified cap.

Deutsche Bank Securities Inc., HSBC Securities (USA) Inc., the Bank of Tokyo-Mitsubishi UFJ Ltd., DNB Markets Inc. and SunTrust Robinson Humphrey Inc. are the joint lead arrangers and bookrunners on the credit facility and bridge loans.

In addition to funding the acquisition, the debt will be used to repay Salix’s existing credit facility, redeem Salix’s 6% senior notes due 2021, and pay any cash consideration necessary upon the conversion of Salix’s 1.5% convertible senior notes due 2019 and 2.75% convertible senior notes due 2015.

Closing is expected in the second quarter, subject to customary conditions and regulatory approval.

Valeant does not anticipate any change to its credit ratings as a result of the transaction.

Net debt to adjusted pro forma EBITDA will be around 5.6 times, but the company expects leverage to be below 4 times by the second half of 2016.

Valeant is a Laval, Quebec-based specialty pharmaceutical company. Salix is a Raleigh, N.C.-based developer and marketer of prescription pharmaceutical products and medical devices for the prevention and treatment of gastrointestinal diseases.

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