Outlook 2015: Merck, Simon Properties, CVS Caremark in big deals; M&A to impact deal flows

By Lisa Kerner

Charlotte, N.C., Jan. 2 – Mergers and acquisitions and low interest rates were key drivers for 2014 liability management activity, according to Kristian Klein, senior vice president of D.F. King & Co., Inc. The two themes were highlighted the previous year.

“Credit spreads remained low, which kept all-in new issue rates attractive for those companies looking to refinance and allowing financial sponsors to raise new money in LBOs,” Klein said.

The one-day sovereign trades that went to market were one of the more “interesting aspects” of the year, according to Klein.

Looking ahead to 2015, Klein expects similar activity from better-rated credits, given the Fed’s “seeming desire to keep rates low” and barring any “meaningful energy-related contagion across the other sectors.”

Klein feels there will be limited ability for some investors to go “risk-on,” which could impact new capital raises from these credits.

“If we see some stabilization around oil, that should help their cause,” said Klein. “On the other side of the spectrum, those more stressed credits where bonds have traded down, may look to capitalize on this market dislocation and opportunistically exchange or tender bonds below par.”

Big deals in 2014

Merck & Co., Inc. accepted $1.8 billion of notes in its tender offer for eight series of notes totaling $4.76 billion. The October offer was for debentures and senior notes with coupons of 5.75% to 6.55% and maturities of between 2026 and 2039.

In September, CVS Caremark Corp. completed a tender offer for its $1 billion of 6.25% senior notes due 2027 and up to a maximum amount of its $1.5 billion 6.125% senior notes due 2039, $950 million 5.75% senior notes due 2041 and $1,310,308,000 5.75% senior notes due 2017. The company accepted for purchase all of the $546,925,000 tendered for the 6.25% notes due 2027; all of the $765,859,000 tendered for the 6.125% notes; and all of the $456,804,000 tendered for the 5.75% notes due 2041. CVS Caremark accepted 38.1%, or $230,412,000, of the $601,478,000 tendered for the 5.75% notes due 2017.

Also in September, Simon Property Group, Inc. operating partnership subsidiary Simon Property Group, LP accepted all $1.32 billion of the notes tendered in its $2.75 billion offering for outstanding notes. The five series of notes had coupons of between 5.1% and 6.1% and one-, two- and three-year maturities.

Freeport-McMoRan Inc. subsidiary Freeport-McMoRan Oil & Gas LLC completed a modified Dutch auction cash tender offer for up to $1.25 billion of five series of notes. The company paid $1.26 billion to purchase $1.14 billion principal amount of the notes in December.

Klein is eyeing an interesting 2015.

“We may see steady flow of both healthy and stressed credits using liability management to strengthen balance sheets,” she said. “If M&A continues at the current pace, that could also increase deal flow across all sectors.”

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