Biotechnology company Amgen Inc. is set to issue $24 billion in corporate bonds on Wednesday, in a move to help finance its acquisition of Horizon Therapeutics, a Dublin-based pharmaceutical company. This will rank among the top 10 largest deals ever financed in the U.S. investment-grade corporate bond market. The bond issue was initially targeted at $20 billion, but demand for the bonds has been exceptionally high, reaching about $90 billion.
Amgen and Horizon Therapeutics announced their plan to merge in December 2022, with Amgen receiving a $28.5 billion bridge credit facility from Citibank and Bank of America to help fund the acquisition. The mega financing comes at a time when borrowing costs for businesses and households are at an all-time high due to the Federal Reserve’s efforts to keep inflation down from its peak of 9.1% last summer.
Despite the current economic climate, yields in the U.S. investment-grade corporate bond market have fallen to around 5.3% from October’s peak of about 6%, in part due to hopes that the Fed might be nearing the end of its rate-hiking cycle. The pullback in yields is indicative of the rally in risk assets at the beginning of 2023, even though recession concerns linger, and companies face some of the highest borrowing costs in over a decade.
The high demand for Amgen’s bonds signals a bullish tone on Wall Street, which has allowed bankers to narrow the financing costs for the borrower while also cutting back compensation due to investors. The shortest two-year class of Amgen’s bonds was expected to clear at 65 basis points above the risk-free Treasury rate, down from an initial price talk of around 90 basis points above the risk-free rate. Meanwhile, the longest 40-year class of bonds was expected to clear at a spread of 200 basis points above the risk-free rate, down from an initial guidance of roughly 230 basis points above the benchmark rate.
The bond issue comes amidst a choppy period on Wall Street. The release of January’s consumer-price index on Tuesday pegged CPI at a slower 6.4% annual rate, but still well above the Fed’s 2% target, raising concerns about the potential for the central bank to raise rates higher than previously anticipated. However, the high demand for Amgen’s bonds suggests that investors are optimistic about the future prospects of the company.
In conclusion, Amgen’s decision to issue $24 billion in corporate bonds despite the high borrowing costs is indicative of the strong investor demand for the company’s debt. The funds raised will go towards the acquisition of Horizon Therapeutics, a move that is expected to bolster Amgen’s position in the pharmaceutical industry. Despite concerns about inflation and recession, the success of the bond issue signals a bullish tone on Wall Street, with investors optimistic about the future prospects of Amgen.
