Shire Pharmaceuticals impressed the Deals of the Year Awards judging panel with a landmark deal. The British company completed the largest-ever bond transaction – $12.1bn – by a UK-listed corporate. It was also the second-largest-ever corporate debut bond.
One of Europe’s largest pharmaceutical companies, Shire has been on an acquisition spree over the past two years: it acquired ViroPharma in 2014, NPS Pharmaceuticals and Dyax in 2015 and, in its most recent and largest acquisition to date, rival Baxalta last year.
The group, which focuses on treatments, medicines and cures in rare diseases, neuroscience and gastrointestinal specialisms, received its first public rating in January 2016 – Baa3 from Moody’s and BBB- from S&P – making this debut bond all the more impressive for its size and pricing.
Shire’s inaugural $12.1bn transaction also represented a big change in the group’s financing strategy, with the proceeds of the issue being used to refinance a portion of the bridge put in place for the $35bn takeover of Baxalta, as well as for general corporate purposes. The approach was timely – just three months after closing – allowing it to avoid any pending market requirement and inherent uncertainty.
The company has now established a formidable presence in the US dollar capital markets and a strong relationship with the global investor base
Shire had previously issued only convertible bonds and this issue is the third-largest-ever transaction from a European corporate borrower in US dollars. Completing the transaction in US dollars allowed the company to match the currency of acquisition consideration/bridge and to tap the most liquid currency market.
The strength of investor interest allowed the company to skew the offering to short-dated maturities, which reduced the funding cost and aligned with Shire’s cash flow and deleveraging plans following the Baxalta acquisition.
Shire, hovering just above non-investment grade, managed to get the deal away at extremely tight levels, with a weighted average coupon of just 2.59%. The transaction achieved a very favourable pricing outcome, with the 5yr, 7yr and 10yr coupons all among the five-lowest-ever BBB- US dollar coupons for their respective tenors.
Pricing through execution was tightened 20-30bps, while the company maintained strong tranching flexibility, with the three-year and five-year tenors ultimately the largest in size.
The company has now established a formidable presence in the US dollar capital markets and a strong relationship with the global investor base that will enhance its future access to the capital markets. The $12.1bn trade amassed a $28.5bn order book.
The team perfectly captured an optimal window, following its acquisition and the summer period, but ahead of macro and political uncertainty in the form of potential interest rate hikes and US election results.
Mark Kitchen, head of UK corporate debt capital markets at Merrill Lynch, who worked on the deal with Shire, says: “What was impressive was the size of the treasury team. It was just three people that drove most of the process. And this deal was just one of a number of things that the team was dealing with at the time.”
“A superb result for a jumbo inaugural transaction”
Issuer Shire Plc
Amount $12.1bn
Structure Four tranches
Rating (at time of deal) Baa3 (stable)/BBB- (stable)
Currency and tenor $/3yr, 5yr, 7yr, 10yr
Interest rate/coupon 1.900%/2.400%/2.875%/3.200%
The judges also applauded EDF’s work, delivering a rather unusual bond in the circumstances of a predisposal deal. The transaction not only marks the largest Formosa issue since markets began, but also the first 40-year US dollar Formosa issue and the longest-ever US dollar Formosa issue.
The transaction allowed EDF to further lengthen its debt-maturity profile at attractive funding costs, demonstrating its strong name recognition around the world with innovative transactions.
The issuance marks EDF’s return to the US dollar Formosa market (listed on Taiwan’s OTC exchange), as the French energy group already accessed this market in October 2015 when it issued an inaugural Formosa for $1.5bn at 30yr at 4.75%.
EDF took advantage of the continuing deep liquidity pool in Taiwan since regulatory change, allowing all bonds listed on the Taipei Exchange to now qualify as domestic securities for insurance companies.
The Treasurer's Deals of the Year Awards recognise the outstanding work of treasurers, both within the treasury community and the wider business world. Through them we champion the success and achievements of treasury teams that have stood out in the market over the prior 12 months. Winning an award is a great way to strengthen your organisation's and your treasury's profile, bringing peer and industry acknowledgement. Find out more here.