May 14, 2018 / 1:03 AM / 4 months ago

Takeda smashes Asian loan record

* Loans: JP Morgan leads US$30.85bn bridge for Shire acquisition

By Wakako Sato and Alasdair Reilly

TOKYO, May 14 (TRLPC) - Takeda Pharmaceutical’s £46bn (US$62bn) acquisition of London-listed rare-disease specialist Shire has prompted Japan’s top drugmaker to line up a US$30.85bn bridge loan, the largest raised in Asia to date.

The jumbo financing is expected to provide opportunities for asset-hungry lenders, both domestic and international, to lend to Takeda either through syndication of the bridge or a refinancing planned within a year.

JP Morgan is underwriting 50% of the financing, and MUFG and Sumitomo Mitsui Banking Corp are committing equally to the remainder.

A bank meeting is scheduled to take place in Tokyo this week. Market participants expect the three banks to sell the loan down given the massive size and the timeline for the M&A.

“It is reasonable to think the bridge will be syndicated given the size of the deal. It still would take time before being refinanced,” one of the sources said.

The financing comprises a US$15.35bn 364-day tranche, a US$4.5bn 364-day tranche, a US$7.5bn 364-day tranche, and a US$3.5bn 90-day tranche.

The financing pays a margin and commitment fee based on a ratings grid. For A1/A+ the margin is 75bp over Libor with a 7bp commitment fee; for A2/A it is 87.5bp with an 8bp fee; for A3/A– it is 100bp with a 9bp fee; for Baa1/BBB+ it is 112.5bp with a 10bp fee; for Baa2/BBB it is 125bp with a 12.5bp fee; and for lower ratings it is 150bp with a 17.5bp fee.

Margins increase by 25bp every three months after closing.

Duration fees start at 50bp 90 days after closing, rising to 75bp 180 days after closing and to 100bp 270 days after closing. Duration fees apply to outstanding drawn and undrawn commitments.

The deal breathes new life into the moribund loan market in Japan, where transactions typically pay ultra-tight pricing and domestic banks dominate.

It should also attract foreign lenders keen to get a piece of a high-profile M&A loan. Takeda’s acquisition of Shire, if successful, would be the largest overseas purchase by a Japanese company and also the biggest in the pharmaceutical sector since 2000.

“The pricing on Takeda’s loan is in line with its bonds, which is not bad. I think the deal would generate enough appetite from lenders,” said a senior banker at an international bank. REFINANCING OPTIONS Takeda said the bridge financing will be taken out through a combination of long-term debt, hybrid capital and available cash before the acquisition, which is expected to be completed in the first half of 2019.

Takeda also said following the acquisition Shire’s substantial cashflow will enable the enlarged group to pay down its borrowings quickly.

Bankers expect Takeda to tap a hybrid financing to replace the bridge as it is committed to maintaining its investment grade rating with a target of achieving a net debt to Ebitda ratio of 2x or less in the medium term.

Last week Moody’s cut Takeda’s rating to A2 from A1 and placed it under review for further downgrade. S&P placed Takeda’s A– rating on review for downgrade up to two notches, depending on the financing scheme.

Takeda’s debt will likely increase six-fold to ¥6trn (US$54.7bn), including Shire’s existing debt of around ¥2trn, and if all of the ¥3trn cash offered to Shire’s shareholders is funded by debt, Moody’s said. Debt-to-Ebitda will almost double to about 6x. SOFTBANK PRECEDENT Takeda’s bridge will be the largest loan from Asia, easily trumping a ¥2.65trn (then US$23bn) jumbo refinancing in November for SoftBank Group Corp. Twenty-five banks, including original mandated lead arranger and bookrunner Mizuho Bank, participated in the multi-tranche borrowing, which refinanced a ¥1trn acquisition financing from September 2016 that backed SoftBank’s £24.3bn purchase of UK chip designer ARM Holdings.

China National Chemical Corp (ChemChina) provides another example of a jumbo acquisition that led to several financing opportunities through loans and bonds. In 2016, ChemChina raised US$32.9bn in recourse and non-recourse bridge loans from more than 20 Chinese, European and Asian lenders for its SFr43bn (then US$43bn) acquisition of Swiss seeds and pesticides maker Syngenta.

The Chinese state-owned giant has since raised multiple fundraisings with the latest being a US$5.5bn in March that attracted 39 lenders, including 15 mandated lead arrangers and bookrunners. In early April Syngenta mandated banks to arrange a series of bond investor meetings about raising up to US$4.8bn of bonds and possibly new bank loans.

Reporting By Wakako Sato and Alasdair Reilly; Editing by Prakash Chakravarti and Steve Garton

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