Hefty Oracle high-grade offering in view; strong potential bond deal pipeline growing

By Cristal Cody

Tupelo, Miss., June 10 – A major high-grade bond offering from the merger-and-acquisition pipeline is expected to hit the primary market early next week.

A hefty multibillion-dollar offering from Oracle Corp. has been on the radar since March as the company neared closing on its $28.3 billion acquisition of Cerner Corp., according to market sources.

Oracle announced Wednesday it closed on the acquisition after a majority of Cerner shares were validly tendered in its $95-per-share cash tender offer that expired Monday.

The company also said in a regulatory filing on Wednesday that it borrowed the total under its $15.7 billion delayed-draw term loan credit agreement due March 7, 2023 to finance the acquisition and repay debt.

The bridge credit agreement the company entered into in March has an interest rate at SOFR plus 100 basis points to 137.5 bps, depending on Oracle’s long-term senior debt rating, or a base rate formula plus a margin of zero bps to 37.5 bps, depending on the credit rating.

S&P Global Ratings on Wednesday lowered Oracle’s ratings to BBB from BBB+, reflecting the higher leverage from the acquisition.

“A further downgrade is still possible, though we believe Oracle will likely maintain an investment-grade rating,” S&P said.

The company is scheduled to release its fourth-quarter fiscal 2022 results on Monday.

Oracle reported on June 1 that it received antitrust approvals for the deal, including European Commission clearance.

M&A deals

New issue volume was hard to peg next week with the Federal Reserve’s rate decision looming on the heels of weak economic data on Friday, but sources anticipate about $15 billion to $30 billion-plus if Oracle prints.

Volume is likely to be front-loaded with an expected rate hike of 50 bps anticipated on Wednesday, sources said.

In May, the Fed made its then-largest interest rate hike in over two decades when it raised the target range for the Federal Funds rate by 50 bps to ¾% to 1%.

Meanwhile, the pipeline of deals with potential investment-grade funding implications climbed to $402 billion in May, up from a low of $253 billion in December, according to a BofA Securities, Inc. research note.

“M&A-related IG issuance slowed” to $5 billion in May from $14 billion in April and $59.4 billion in March, BofA said.

March’s supply was the highest M&A-related volume since at least 2013, according to the note.

Several mergers with high-grade funding potential are likely to close over the summer, sources said.

Algonquin Power & Utilities Corp. is expected to close in mid-2022 on its $2.85 billion acquisition of Kentucky Power Co. and AEP Kentucky Transmission Co.

Cargill, Inc. and Continental Grain Co. are waiting on regulatory approval for a $4.5 billion acquisition of Sanderson Farms Inc. that was announced last August and expected to wrap by early 2022.

DuPont de Nemours Inc. also is expected to close in the second quarter on its $5.2 billion takeover of Rogers Corp.

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