Johnson & Johnson took advantage of its best AAA credit ratings on Thursday to borrow $ 7.5 billion in cheap financing for its takeover of Momenta Pharmaceuticals, Inc.
J&J, which manufactures drugs, consumer goods, and medical devices, is the only other major US company besides Microsoft Corp MSFT,
always with the best AAA credit scores, which NPR’s Planet Money says amounts to the highest possible consumer credit score.
Lis: A frenzy? Bulge? Or just the new standard for America’s debt, with the Fed helping spur a series of records
Asked by J & J’s JNJ,
The six-fold corporate bond deal has helped the more than 130-year-old conglomerate lock in some of the cheapest financing available for years.
Final pricing details pegged the yield on the shorter five-year bond tranche at 0.57% and 2.49% for the longest 40-year debt category.
With the Federal Reserve’s backing for the pandemic, investment-grade U.S. companies have seen a wave of record $ 1.4 trillion bond borrowing this year at record yields, issuing about 74% more debt than at the same time last year, according to data from BofA.
BofA Global created this chart to show investment grade bonds hitting a new 24-year low this summer based on yields. Bond prices move in the opposite direction of yields.
The new financing will mainly be used by J&J to purchase Momenta MNTA,
in a $ 6.7 billion cash takeover bid, which was announced on Wednesday and sent shares of the Cambridge, Massachusetts-based biotech company 69% higher to close at $ 52.12 per share.
Under the terms of the agreement, J&J will pay $ 52.50 for each Momenta share outstanding. The agreement is expected to be concluded in the second half of 2020.
The remainder of the debt financing was set for general corporate purposes.
Moody’s Investors Service has assigned debt financing an AAA rating, but with a negative outlook. While the rating firm expects J & J’s pharmaceutical business to generate “mid-to-high single-digit growth” over the next several years, this contrasts with weaker growth forecasts for its other areas of business. activity, which also face risks related to “unresolved disputes involving opioids and talc”, which could limit free cash flow “over several years”.
Johnson & Johnson, MRNA de Moderna Inc.,
Pfizer Inc. PFE,
and AstraZeneca PLC AZN,
ran to get trials underway to help speed development of a COVID-19 vaccine, with J&J planning to start a trial of 60,000 people worldwide by the end of next month to test if it can protect the people against the virus.
Vaccine hopes were one of the catalysts that helped bring major U.S. stock indexes back to or beyond their previous highs before the pandemic, with the S&P 500 SPX Index,
this week marking his fastest recovery in history.
Related: Don’t watch now, but here’s the tidal wave of vaccine news