Pharmaceutical company AbbVie Inc. sold $16.7 billion in new
bonds on Tuesday, becoming the latest company to tap the bond
market in a big way to help finance an acquisition.
The sale from the North Chicago, Ill.-based company is one of
the largest corporate bond deals of the year. AbbVie plans to use
the proceeds to pay for its $21 billion acquisition of drug company
Pharmacyclics Inc.
The sale, which according to investors attracted $65 billion or
more in orders, comes on the heels of a $21 billion sale from
Actavis PLC and a $17.5 billion deal from AT&T Inc. earlier
this year. Those companies also planned to use the proceeds for
acquisitions.
Investors looking for higher interest rates than those available
on safe government debt are piling into the large corporate bond
sales. The low-rate environment is also driving down the cost of
debt for companies, making it a good time for them to sell
bonds.
"All these big deals get well oversubscribed," said Zachary
Chavis, a portfolio manager at Sage Advisory Services, which
oversees about $11 billion and put in an order for the AbbVie
bonds. Mr. Chavis said AbbVie's acquisition helps the company
diversify away from its blockbuster arthritis drug Humira.
AbbVie sold the bonds in six parts, with bonds maturing between
three and 30 years. A 10-year bond was offered to yield 1.45
percentage points more than similar-maturity Treasurys, for a yield
of 3.621%.
Despite investor demand, the wave of large corporate-debt sales
has weighed on the market. So far in May, U.S. investment-grade
corporate bonds have posted a total return of negative 0.66%,
reflecting price changes and interest payments, according to
Barclays data. For the full year, the total return is a positive
0.93%.
"As long as rates stay at this level, it's really attractive for
companies to come out and tap the bond market," said Kent White,
director of investment-grade research at Thrivent Asset Management,
which oversees $96 billion. Still, Mr. White said he would be
"really surprised if we continue to see this level of the really
large transactions."
Mr. White said his firm put in an order for the AbbVie bonds. He
said he is positive on the U.S. economy for the rest of the year,
which should help bolster corporate balance sheets.
Write to Mike Cherney at mike.cherney@wsj.com
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