Merck upsizes jumbo deal; Japan Finance, Costco price; Pfizer, Hospira active on acquisition

By Aleesia Forni

Virginia Beach, Feb. 5 – The investment-grade primary saw Merck & Co., Inc. come to market with a jumbo bond offering during the session on Tuesday, helping push the week’s new issuance total past expectations.

The massive $8 billion deal met with solid demand, allow the underwriters to increase the amount from initial size thoughts of $6 billion.

All six tranches of the offering sold at the tight end of talk.

In other primary happenings, Japan Finance Organization for Municipalities and Costco Wholesale Corp. were each in the primary with $1 billion offerings, respectively.

The session also saw MUFG Americas Holdings Corp. price a new offering of bonds, though details of the sale were unavailable at press time.

More than $39 billion of new issuance has sold during a blockbuster week for high-grade bonds, blowing away expectations of a $25 billion to $30 billion week.

In the secondary market, investment-grade bond spreads eased over the session.

The Markit CDX North American Investment Grade index was 1 basis point wider at a spread of 66 basis points.

Bonds from Pfizer Inc. and Hospira, Inc. were active on Thursday following news that Pfizer would acquire Hospira for around $17 billion.

The deal will likely be financed through a combination of existing cash and new debt.

Merck upsizes

Merck sold an upsized $8 billion offering of notes (A2/AA/) in six tranches during Thursday’s session, according to a market source and a 424B5 filing with the Securities and Exchange Commission.

There was $300 million of floating-rate notes due 2017 priced at Libor plus 12.5 bps.

The notes sold at the tight end of the Libor plus 15 bps area talk, which had firmed from guidance set in the 20 bps area over Libor.

A $700 million tranche of floating-rate notes due 2020 sold at Libor plus 37.5 bps. They had been talked at the Libor equivalent of the five-year fixed-rate notes.

The company also sold $1.25 billion of 1.85% five-year notes at a spread of Treasuries plus 55 bps.

Pricing was at the tight end of talk set in the 60 bps area over Treasuries. Talk had firmed around 10 bps compared to initial guidance.

A $1.25 billion tranche of 2.35% seven-year notes sold at Treasuries plus 75 bps.

The notes due 2022 sold at the tight end of talk set in the 80 bps area over Treasuries, which had firmed from guidance set in the 90 bps area over Treasuries.

There was also $2.5 billion of 2.75% notes due 2025 priced at 95 bps over Treasuries.

Pricing was at the tight end of talk set in the area of 100 bps over Treasuries having firmed from guidance set in the 110 bps area over Treasuries.

Finally, $2 billion of 3.7% notes due 2045 sold at 130 bps over Treasuries.

Talk was set in the 135 bps area over Treasuries and had firmed from guidance in the 145 bps area over Treasuries.

Bookrunners were J.P. Morgan Securities LLC, Deutsche Bank Securities Inc. and Credit Suisse Securities (USA) LLC.

Proceeds will be used to repay commercial paper issued to finance most of the company’s acquisition of Cubist Pharmaceuticals, Inc., which closed on Jan. 21.

The health care company is based in Whitehouse Station, N.J.

Costco’s two-parter

Costco Wholesale priced $1 billion of senior notes (A1/A+/) on Thursday in five- and seven-year tranches, according to a market source and a FWP filed with the Securities and Exchange Commission.

The company priced $500 million of 1.75% five-year notes at Treasuries plus 47 bps.

The notes sold at 99.895 to yield 1.772%.

There was also $500 million of 2.25% seven-year notes priced at 99.704 to yield 2.296%, or 67 bps over Treasuries.

Both tranches sold at the tight end of price talk.

J.P. Morgan Securities LLC, Guggenheim Securities, Wells Fargo Securities LLC and U.S. Bancorp Investments Inc. were the bookrunners.

Proceeds will be used to partially fund a special cash dividend on the company’s common stock of $5 per share.

The membership warehouse is based in Issaquah, Wash.

Japan Finance sells new issue

Japan Finance Organization for Municipalities sold $1 billion of 2.375% notes (A1/AA-/) due 2025 at a spread of mid-swaps plus 48 bps, according to a market source and a company release.

The debt was priced at 99.611 to yield 2.419%.

The bookrunners were Barclays, Goldman Sachs and J.P. Morgan Securities LLC.

The notes were sold via Rule 144A and Regulation S.

The lender to local governments is based in Tokyo.

Pfizer bonds active

In the secondary, Pfizer’s bonds were active during the session following the company’s announcement that it would acquire Hospira.

The company’s $1.5 billion of 2.1% notes due 2019 traded tighter at 19 bps bid. The notes sold with a spread of Treasuries plus 48 bps on May 13.

Its $1 billion of 3.4% notes due 2024 were quoted at 80 bps bid.

The notes sold also sold on May 13 with a spread of Treasuries plus 80 bps.

Hospira’s bonds were also active during the session and traded around 5 points to 10 points better on the day, according to a market source.

Pfizer expects to finance the acquisition through a combination of existing cash and new debt.

According to a news release, about two-thirds of the price will be financed from cash and one-third from debt.

Pfizer is a New York-based global biopharmaceutical company. Hospira is a specialty pharmaceutical and medical delivery company, is based in Lake Forest, Ill.

Bank/brokerage CDS costs lower

Investment-grade bank and brokerage CDS prices were lower on Thursday, according to a market source.

Bank of America Corp.’s CDS costs were 2 bps lower at 66 bps bid, 69 bps offered. Citigroup’s CDS costs were also 2 bps lower at 77 bps bid, 82 bps offered. JPMorgan Chase & Co.’s CDS costs declined 2 bps to 65 bps bid, 68 bps offered. Wells Fargo & Co.’s CDS costs were down 1 bp to 48 bps bid, 51 bps offered.

Merrill Lynch’s CDS costs were 2 bps lower at 69 bps bid, 72 bps offered. Morgan Stanley’s CDS costs declined 2 bps to 76 bps bid, 81 bps offered. Goldman Sachs Group’s CDS costs were 2 bps lower at 85 bps bid, 88 bps offered.

-Paul Deckelman contributed to this review

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