Teva Increases Junk Senior Note Offering to $4.5 Billion

Last week the debt-laden drugmaker announced a $3.5 billion-equivalent offering to repay its short-term $1.5 billion outstanding debt due July

Lilach Baumer 14:5708.03.18
Teva Pharmaceutical Industries Ltd. has increased its unsecured senior notes offering from $3.5 billion-equivalent to $4.5 billion, the company announced Wednesday. Teva is issuing the notes, first announced last week, through two of its Netherland-based finance subsidiaries.


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The Israel-based generic drugmaker is carrying a debt of around $32 billion after taking out $33.75 billion in loans to finance its 2016 acquisition of Actavis, the Ireland-based generic business of Allergan. $1.5 billion of that outstanding debt is due July 2018, and $1.2 billion is due 2019. Teva hopes to repay those short-term loans in the first quarter of 2018 with the new issuance, its first since all three big credit rating agencies downgraded Teva's corporate credit rating to junk bonds over the past few months.


Teva CEO Kåre Schultz. Photo: PR Teva CEO Kåre Schultz. Photo: PR



The past two years were harsh on Teva, as its plan to cement itself as an indisputable market leader using Actavis' assets collapsed in the face of worsening market conditions in the U.S. A U.S. Food and Drug Administration that looks to foster industry competitiveness and downward pricing pressure exerted by retailer consolidation and mounting public criticism hit Teva hard, reducing its profit margins and forcing the company to lower its financial outlook again and again. As investors lost confidence, Teva's stock hit a 15-year low in November.


In December, newly appointed CEO Kåre Schultz—Teva's fifth CEO since 2012—unveiled an aggressive reorganization plan intended to stabilize the company's financial situation. His strategy includes extensive non-core asset divestment and the cutting of 25% of Teva employees by 2019, including in Israel, Teva's home turf.


“With the successful pricing of $4.5 billion of senior notes, we have completed an important piece of our financial plan," said Teva’s Executive Vice President and Chief Financial Officer Mike McClellan in Wednesday's statement.


The yields offered by Teva on its senior notes are much higher than the rates at which it raised debt as an investment-grade issuer in 2016, to reflect the higher risk of default. Moody's Investors Service assigned last week a Ba2 rating (junk bonds) to the offering, with a stable outlook. Current rising interest rates in the U.S. may also impact the risk involved.


Teva's senior notes offering consists of 1.25 billion worth of U.S. dollar-denominated notes at 6% yield, set to mature in 2024; 1.25 billion worth of U.S. dollar-denominated notes at 6.75% yield, set to mature in 2028; 700 million euros worth notes at 3.25% yield, set to mature in 2022; and 900 million euros worth notes at 4.5% yield, set to mature in 2025. The company stated it expects to settle the registration of the notes "on or about" March 14, subject to customary closing conditions.
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