Teva Selling $3.5 Billion of Junk Bonds to Refinance Debt

(Bloomberg) -- Teva Pharmaceutical Industries Ltd., in its first offering as a high-yield issuer, is selling $3.5 billion of bonds to refinance debt.

The drugmaker will have to bear higher interest costs to push out maturities as a massive debt load and weakening sales of a top product have cost it its investment-grade ratings. Teva is selling 1 billion euros ($1.22 billion) and $2.25 billion of debt, it said in a statement Wednesday. The European offering will include maturities of four and seven years, according to people with knowledge of the matter. 

In early discussions with investors, the six-year dollar notes have been marketed at a yield of around 6.5 percent, while the bonds due in 10 years are being offered at about 7.25 percent, said a person familiar with the deal, who asked not to be identified as the details are private. Teva's outstanding 10-year notes due 2026 currently yield about 5.9 percent, according to Trace bond price data.

Investor Attention

“That's enough of a concession that people are going to look at it,” said John Yovanovic, a high-yield portfolio manager at PineBridge Investments LLC. “This is going to get a lot of attention.”

A spokeswoman for Petach Tikva, Israel-based Teva declined to comment beyond the company's statement.

Teva has been struggling under a crushing debt load since its ill-timed buyout of Allergan Plc's generics business in 2016. Chief Executive Officer Kare Schultz, who has been in charge since November, has prioritized cutting costs and paying down the company's borrowings in his turnaround plan. The debt load stood at $32.5 billion as of Dec. 31. The proceeds of Wednesday's sales will repay about $2.3 billion outstanding under the company's dollar and yen-denominated term loans and, along with cash on hand, repay all $1.5 billion outstanding of its 1.4 percent notes due in July.

Adding to the company's woes have been weakening sales of its blockbuster drug Copaxone, which has been facing increasing competition from generic manufacturers. Novartis AG and Momenta Pharmaceuticals Inc. received FDA approval earlier this month for their versions of the drug, following Mylan NV's approval in October.

This marks Teva's first bond sale since it was cut to junk by Moody's Investors Service on Jan. 12. The drugmaker started laying the groundwork for $5 billion of bond sales last month to restructure its debt. After reporting quarterly earnings results earlier this month, Schultz said he doesn't anticipate issuing secured debt, a form of financing that's typically associated with lower interest costs than unsecured bonds.

Barclays Plc, Bank of America Corp., BNP Paribas SA, Citigroup Inc., Credit Suisse Group AG, HSBC Holdings Plc, Morgan Stanley, Royal Bank of Canada, Mizuho Financial Group Inc., Bank of Tokyo-Mitsubishi UFJ Ltd. and SMBC Nikko Securities Inc. are managing the sales, one of the people said. Teva will market the offering globally over the next few days and the deal will price next week, the person said.

--With assistance from Gowri Gurumurthy John Lauerman and Dan Wilchins

To contact the reporter on this story: Molly Smith in New York at msmith604@bloomberg.net.

To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, Tiffany Kary

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