Bayer sells megadeal for purchase of Merck unit; CBL, Ares price; spreads generally ease

By Aleesia Forni

Virginia Beach, Oct. 1 – Bayer US Finance LLC came to the primary market with a $7 billion offering of senior on Wednesday amid a weaker session for high-grade bonds.

The megadeal was well received by investors despite the market’s tone, attracting an order book that was more than four times oversubscribed.

All six tranches of the deal sold at the tight end of price talk.

The company plans to use proceeds in order to finance its acquisition of global health care company Merck & Co. Inc.’s consumer-care business.

Away from the Bayer new issue, the primary market hosted a handful of smaller-sized deals on Wednesday.

CBL & Associates LP came to market with $300 million of 10-year senior notes, while Inter-American Development Bank priced $500 million of bonds due 2018.

Both deals sold in line with price talk.

There was also a $250 million offering of five-year bonds priced by Ares Finance Co. LLC.

In other market action, Freddie Mac sold a $500 million tap of its Reference Notes due July 28, 2017 via an internet-based auction on Wednesday.

Even with an empty Monday session in which no new deals sold, the primary market has still seen more than $17 billion of new issuance this week.

Sources had expected around $20 billion to $25 billion of supply.

Looking forward, activity in the primary is expected to slow in October compared to September, which saw more than $129 billion of new issuance.

“Should be less hectic than [September],” one source said.

In the secondary market, investment-grade bond spreads were flat to wider on light activity on Wednesday.

The Markit CDX North American Investment Grade series 22 index was 1 basis point wider at a spread of 65 bps.

CBL & Associates’ bonds were quoted tighter in the secondary market late during the session, according to a trader.

S.C. Johnson & Son Inc.’s recently priced senior notes also performed better on Wednesday, market sources said.

Bayer megadeal

Bayer US Finance priced $7 billion of senior notes (A3/A-/) in six tranches on Wednesday, a market source said.

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

The company’s sale included $500 million of two-year floaters priced at par to yield Libor plus 25 bps.

There was also $400 million of floating-rate notes due 2017 priced at par to yield Libor plus 28 bps.

An $850 million tranche of 1.5% three-year notes priced at 99.933 to yield 1.523%, or Treasuries plus 55 bps.

Bayer also priced $2 billion of 2.375% five-year notes at 99.542 to yield 2.473%, or Treasuries plus 80 bps.

There was also $1.5 billion of 3% notes due 2021 priced at Treasuries plus 90 bps. The notes sold at 99.95 to yield 3.001%.

Finally, $1.75 billion of 3.375% 10-year notes sold at 99.011 to yield 3.493%, or Treasuries plus 110 bps.

A planned tranche of floating-rate notes due 2019 was dropped prior to the deal’s launch.

Proceeds will be used to fund Bayer AG’s acquisition of Merck’s consumer-care business.

The bookrunners for the Rule 144A and Regulation S deal were BofA Merrill Lynch, Deutsche Bank Securities Inc., Goldman Sachs & Co. and J.P. Morgan Securities LLC.

Bayer’s new deal comes on the heels of two other jumbo acquisitions trades priced last week.

Sysco Corp. came to market on Sept. 23 with a $5 billion offering, while Roche Holding AG sold $5.75 billion of bonds on Sept. 22.

The German chemical and pharmaceutical company is based in Leverkusen.

CBL brings 10-years

CBL & Associates sold $300 million of 4.6% 10-year senior notes at Treasuries plus 220 bps on Wednesday, according to a market source and an FWP filing with the Securities and Exchange Commission.

The notes (Baa3//BBB-) sold in line with talk.

Pricing was at 99.975 to yield 4.603%.

A trader quoted the notes at 219 bps bid late during the session.

BofA Merrill Lynch, JPMorgan, RBC Capital Markets LLC, U.S. Bancorp Investments Inc. and Wells Fargo Securities LLC were the joint bookrunners.

Proceeds will be used to reduce amounts outstanding under the company’s revolving credit facilities and for general business purposes.

The notes will be guaranteed by CBL & Associates Properties Inc.

CBL is a Chattanooga, Tenn.-based owner and developer of malls and shopping centers.

IADB sells in line with talk

Inter-American Development Bank sold $500 million of 1.25% bonds (Aaa/AAA/) due Jan. 16, 2018 at mid-swaps minus 9 bps on Wednesday, an informed source said.

The notes sold in line with talk, which was set in the area of mid-swaps minus 9 bps.

The bookrunners were Citigroup Global Markets Inc. and JPMorgan.

The issuer provides financing for Latin American and Caribbean countries and is based in Washington, D.C.

Freddie Mac adds on

Freddie Mac priced a $500 million add-on to its existing 1% Reference Notes due July 28, 2017 via an internet-based auction on Wednesday at 99.966406 to yield 1.012%, according to a company news release.

The deal’s size is now $4 billion.

The bid-to-cover ratio was 4.7 to 1.

The government-sponsored enterprise is based in McLean, Va.

S.C. Johnson firms

S.C. Johnson & Son’s bonds traded better during Wednesday’s session, market sources said.

The company’s $250 million of 3.35% 10-year notes, which priced on Tuesday at Treasuries plus 87.5 bps, traded around 4 bps tighter at 83 bps bid, 81 bps offered, a trader said.

The company’s $250 million of 4.35% 30-year bonds were quoted at 117 bps offered after pricing with a spread of Treasuries plus 120 bps on Tuesday, a market source said.

The consumer products company is based in Racine, Wis.

Bank/brokerage CDS costs

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

Bank of America Corp.’s CDS costs rose 1 bp to 78 bps bid, 81 bps offered. Citigroup Inc.’s CDS costs were flat at 77 bps bid, 80 bps offered. JPMorgan Chase & Co.’s CDS costs were 1 bp higher at 64 bps bid, 67 bps offered. Wells Fargo & Co.’s CDS costs ended unchanged at 49 bps bid, 54 bps offered.

Merrill Lynch’s CDS costs were 1 bp higher at 80 bps bid, 84 bps offered. Morgan Stanley’s CDS costs ended 2 bp lower at 88 bps bid, 91 bps offered. Goldman Sachs Group, Inc.’s CDS costs were flat at 90 bps bid, 95 bps offered.

Paul Deckelman contributed to this review

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