TRLPC: Concordia concessions show pharmaceutical loans under pressure

Wed Oct 21, 2015 5:22pm EDT
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By Jonathan Schwarzberg

NEW YORK Oct 21 (Reuters) - Banks arranging a US$1.865bn-equivalent of leveraged acquisition loans for US pharmaceutical company Concordia Healthcare had to offer heavy discounts and other concessions to attract investors as this part of the US healthcare sector continues to be pummelled.

Pharmaceutical companies debt and equity prices have been under pressure since presidential candidate Hillary Clinton announced plans to lower drug costs. The term loans of Concordia moved lower during the Wednesday session as a short-seller's fraud accusation against Valeant Pharmaceuticals spooked loan investors after initially trading higher post-break.

The deal, which finances Concordia's US$3.5bn acquisition of Amdipharm Mercury, includes a US$1.1 billion term loan and a £500m term loan.

The US$1.1bn loan priced at 425 basis points (bp) over Libor with a discount of 94.5% of face value on Wednesday and the £500m loan priced at 500bp over Libor with a discount of 93.5. Both tranches had a 1% Libor floor.

The concessions, which can reduce or eliminate arranging banks' profits in extreme cases, were offered to encourage investors to join the deal. Both tranches were originally offered with discounts of 99 of face value.

Goldman Sachs, Credit Suisse, Royal Bank of Canada and Jefferies underwrote the financing package backing the deal.

In addition to offering a discount on the term loans, Concordia had to add a US$180m equity bridge loan and extend the maturity of US$135m of that bridge from two to seven years, after selling only US$520m of stock to back the deal. The company also issued US$790m of notes.

Soft call protection was also extended to one year from six months and amortizing repayments were added to the dollar and sterling term loans.   Continued...