Pfizer tightens levels by 10bp-20bp at guidance

(Updates with guidance, Moody's view on acquisition)

By Shankar Ramakrishnan

NEW YORK (Frankfurt: HX6.F - news) , May 12 (IFR) - Pfizer Inc (NYSE: PFE - news) tightened pricing levels at the guidance stage Monday on its latest multi-part dollar bond by about 10bp to 20bp across the curve.

The company, which is currently looking to acquire AstraZeneca (NYSE: AZN - news) , said it was issuing bonds to refinance outstanding debt.

Pfizer has mandated banks for three-year, five-year, 10-year and 30-year fixed rate notes, and could also sell three- and five-year floating rate notes.

Earlier today, the three-year fixed was shown to investors with initial price talk set at Treasuries plus 40bp area, while IPTs on the five-year fixed are plus 60bp area, the 10-year at plus 95bp area and 30-year at plus 115bp area.

When guidance levels were announced, the three-year fixed had guidance of Treasuries plus 25bp area, while the five-year fixed were at plus 50bp area, the 10-year at plus 80bp area and 30-year at plus 95bp area. Area is plus or minus 5bp.

At the IPT stage, investors were offered a pickup of about 15bp to 20bp across the new issuance curve. Based on the guidance levels, however, the pickup was cut down to flat to 10bp on the back of strong investor demand.

At the guidance levels, the five-year is offering a new issue concession of 10bp, based on where the outstanding 1.5% June 2018s are trading with a G spread of 40bp, while the new 10-year concession is flat versus where the 3% June 2023s are trading at a G-spread of 80bp.

The 30-year bonds are offering 1bp in concession compared with the 4.3% June 2043s at Treasuries plus 96bp.

Those concessions may shrink even further through the bookbuilding process if demand from investors continues to remain strong.

M&A BATTLE

Bank of America Merrill Lynch, Barclays (LSE: BARC.L - news) , Deutsche Bank (Xetra: DBK.DE - news) and JP Morgan (Other OTC: JPYYL - news) are the active bookrunners for the trade, while BNP (Paris: FR0000131104 - news) Paribas, Credit Suisse (NYSE: CS - news) and RBC (MCX: RBCM.ME - news) are passive bookrunners.

Pfizer said it will use proceeds to pre-fund the repayment at maturity of EUR900m outstanding 4.75% notes due December 2014, and a portion of the outstanding 5.35% notes due March 2015.

The deal, expected to price later on Monday, comes as Pfizer (TLO: PF-U.TI - news) defended the business case behind its plan to acquire AstraZeneca.

Pfizer also questioned the UK drugmaker's ability to stand alone for much longer, as the New York-based group's CEO prepared for a grilling from British lawmakers.

The proposed US$106bn deal, which would be the largest foreign takeover of a British firm, is opposed by many scientists and politicians as well as by AstraZeneca itself.

Moody's, which has an A1 rating for Pfizer, said it expects the company's credit metrics to remain solid, excluding scenarios of debt-financed acquisitions or major divestitures.

Though it expects the acquisition to the credit positive for Pfizer, it said: "If a combination occurs, the upward pressure on Pfizer's rating, if any, could be limited by a declining revenue base due to patent expirations of both companies, and financial policies which could include heavy payouts to shareholders."

If a deal was not reached, it added, there was event risk of other acquisitions, some of which could be debt-financed, or the potential split-up of Pfizer's pharmaceuticals business.

Moody's could upgrade Pfizer's ratings if it continues steady deleveraging such that key credit ratios can be sustained at very strong levels, including CFO/debt above 50% and debt/EBITDA below 1.25 times.

Conversely, Pfizer's ratings could be downgraded if CFO/debt is sustained below 40% or if debt/EBITDA is sustained above 1.75 times, the rating agency said.

It said this could occur with significant acquisitions or divestitures, unforeseen operating setbacks (product withdrawal or loss of a key patent challenge), or a major decline in EBITDA without a commensurate reduction in debt. The ratings could also face pressure if Pfizer encounters significant pipeline setbacks. (Reporting by Shankar Ramakrishnan; Editing by Natalie Harrison and Marc Carnegie)