NEW YORK (Reuters) - Express Scripts ESRX.O is syndicating a $14 billion bridge loan that will help finance its $29.1 billion acquisition of rival Medco Health Solutions MHS.N, banking sources said on Friday.
The 364-day bridge loan, being arranged by Credit Suisse and Citigroup, is the biggest loan underwriting since a $20 billion underwriting done solely by JP Morgan in March to help AT&T (T.N) raise money to buy T-Mobile USA from Deutsche Telekom (DTEGn.DE).
Express Scripts on Thursday announced an agreement to buy Medco for $71.36 per share to create a powerhouse in managing prescription drug benefits.
The jumbo M&A loan is a benchmark deal for the U.S. and global loan market and sends a clear message of confidence that banks are able to underwrite multibillion-dollar loans despite difficult capital market conditions.
“Size is always challenging, but this company hits all of the points in terms of ability to syndicate, ability to access the bond market, the stability of the business, and it’s a name that people have a lot of familiarity with,” said a banker close to the deal.
The $14 billion, 364-day bridge loan will be replaced by permanent bond and loan financing shortly. A $5.5 billion permanent loan facility will be syndicated in August, the bankers said.
It will consist of a $4 billion funded five-year term loan A and a $1.5 billion five-year revolving credit, they added. Pricing on the term loan A is expected to open at 175 basis points over LIBOR.
“We have committed financing in place, but are not providing additional details at this time,” a spokesperson for Express Scripts said.
The company has said that it is committed to maintaining an investment grade rating of BBB+ by Standard and Poor’s and Baa3 by Moody’s and has structured the loan accordingly.
Express Scripts has a strong relationship bank group and a good track record of syndicating loans in choppy markets, bankers said.
It was the first BBB rated company to access the U.S. bridge loan market in 2009 with a $2.5 billion deal to partly finance its acquisition of health insurer WellPoint’s NextRx subsidiaries.
The new company will be called Express Scripts Holding Inc and will be headquartered in St. Louis, Missouri.
Under the agreement, Medco shareholders will receive $71.36 per share in cash and stock, or $29.1 billion, based on the closing price on July 20. Medco shareholders will receive $28.8 in cash and 0.81 Express Scripts share for each Medco share they own.
At the close of the transaction, Express Scripts shareholders will own 59 percent of the combined company, and Medco shareholders will own about 41 percent.
The deal is expected to close in the first half of 2012 but is likely to attract antitrust scrutiny, Reuters reported on Thursday.
Citigroup and Credit Suisse acted as Express Script’s financial advisers. Medco’s co-lead financial advisers are JP Morgan and Lazard.
On the loan financing, Credit Suisse is acting as lead arranger and administrative agent and Citigroup is lead arranger and syndication agent.
Writing by Tessa Walsh in London; Editing by Steve Orlofsky