Investors Scramble To Get A Piece Of CVS' Gargantuan Bond Deal As IG Yields Surge

On Tuesday, CVS marketed the 10-year portion with a yield 175 bps points above 10Y TSY, or roughly 4.65%.  The 30-year tranche may yield 215 bps above Treasuries, according to BBG.

As noted above, all of the tranches except the new 30Y will include a mandatory redemption clause that requires CVS to withdraw the debt at 101 cents on the dollar if it does not complete its takeover of Aetna by September 3, 2019.

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On Tuesday, S&P downgraded CVS to "BBB" from "BBB+," outlook stable, and removed ratings from watch negative, citing the company’s expected risk profile following the issuance of senior unsecured notes to partly fund the purchase of health insurance provider Aetna Inc.


  • CVS’ financial risk profile will weaken considerably from the significant increase in debt S&P says, with pro-forma adjusted debt to EBITDA increasing to about 4.5x from 2.9x prior

  • Stable outlook reflects S&P’s expectation that CVS will pay down debt, resulting in leverage improving to the low-4x area within one year from closing


None of that matters to investors, however, who are certain to leave the offering significantly oversubscribed: street talk is that there is already some $100 billion in demand penciled in.

Regardless of what CVS does, keep an eye on overall yields which in recent weeks have been surging alongside overall rates, and as of today, the Bloomberg Barclays aggregate Yield to Worst was the highest since 2011...

 

... which while also ignored by investors, will soon be felt by companies who are issuing hundreds of billions in bonds to fund buybacks; the problem is that the higher the yield goes, the less attractive it becomes to issue debt and buy your own stock.

 

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