CELG Celgene Corporation

By Sam Goldfarb 

Bristol-Myers Squibb Co. is planning to sell around $20 billion of bonds on Tuesday, seizing on a low-interest rate environment to help fund its blockbuster acquisition of Celgene Corp.

Coming off solid first-quarter earnings, Bristol-Myers is aiming to sell nine different bonds, with maturities ranging from one-and-1/2 years to 30 years, investors said. If it meets expectations, the bond sale would be the biggest of the year and the largest since Comcast Corp. sold $27 billion of bonds in October to finance its purchase of Sky PLC, according to Dealogic.

As with many other companies that have executed bond sales of at least $10 billion in recent years, Bristol should have little trouble placing its debt, investors and analysts said.

When the pharmaceutical company first announced a deal to buy rival Celgene for roughly $74 billion in early January, demand for corporate debt was soft, leading to higher potential borrowing costs for companies. Since then, however, Treasury yields have fallen and investors have demanded a smaller amount of extra yield, or spread, to hold corporate bonds over government debt.

Bristol-Myers, historically a conservative borrower, is wagering that acquiring Celgene will expand its pipeline of drugs and give it more leverage in negotiations with insurance companies and pharmacy-benefit managers that determine reimbursement and coverage.

In a filing last week, Bristol-Myers estimated it would borrow a total of $29 billion to fund the Celgene deal, which is expected to close in the third quarter. It has already obtained $8 billion of loans from banks.

Analysts at the research firm CreditSights have projected that Bristol-Myers's ratio of debt to earnings before interest, taxes, depreciation and amortization, or Ebitda, would rise to 3.2 times from 0.7 times after the acquisition. They also estimate the company will be able to generate $14 billion to $16 billion of annual free cash flow over the next three years, allowing it to cut its debt-to-Ebitda ratio roughly in half over that span.

Even with the increase in debt, Moody's Investors Service indicated last week that it will likely downgrade Bristol-Myers' credit rating only one notch to A3 from A2. That sets the company apart from many other investment-grade companies that have settled into the bottom rung of the investment-grade credit ladder, a trend that has raised concerns about massive downgrades to junk territory if there's an economic downturn.

Both Bristol-Myers and Celgene have had their challenges in recent years. Bristol-Myers has lost its advantage in immunotherapy treatment of lung cancer to rival Merck & Co., while Celgene has struggled to find new products to offset the looming patent expiration of its top-selling cancer drug Revlimid.

Still, Bristol-Myers last month reported higher-than-expected revenue in the first quarter, helped by stronger demand for its immunotherapy drug Opdivo and blood-thinner Eliquis.

Bristol-Myers' bond sale will boost the 2019 tally of investment-grade bond issuance, which has matched last year's pace but fallen below the record-setting standards of other recent years.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

(END) Dow Jones Newswires

May 07, 2019 11:07 ET (15:07 GMT)

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