By Laura Benitez
(Bloomberg) — Teva Pharmaceutical Industries Ltd boosted the size of its bond offering to around $2.2 billion to meet a flood of orders, albeit at triple its usual funding costs.

 

Following a week-long roadshow across Europe and U.S, the Israel-based drugmaker has set final yield guidance on a minimum $1 billion tranche at around 7.125-7.250% and about 6-6.125% on a 1 billion euro portion. This is a reduction from initial price talk announced last week by the bookrunning banks.
The company is still likely to pay a hefty price premium on the new notes to account for the billions of dollars in potential liabilities from lawsuits related to the U.S. opioid crisis earlier this year.

“It’s an attractive sell if you can get comfortable with the risks,” said Benjamin Sabahi, head of research at Spread Research. The higher yields may have lured a wider base of investors beyond dedicated high-yield fund, according to Sabahi, who added that yields of as much as 6% on the euro denominated notes compare favorably to the 2.8% of other similarly rated deals.

Teva is paying on average about 2.1% for existing euro debt and 3.7% for U.S. securities, according to data compiled by Bloomberg. Much of that debt was issued before the company was downgraded to junk status from 2017.

Teva’s Links to Opioid Epidemic May Triple Funding Costs Support from central banks has propped up demand for higher yielding securities in recent weeks. Casino Guichard-Perrachon SA was able to boost the size of its latest debt offering months after chairman Jean-Charles Naouri placed its parent company under protection from creditors in May.
In spite of the attractive yields, Teva’s debt still faces the potential of steep losses.
“There’s little clarity with Teva and credit investing should be about maximum visibility,” Sabahi said. “The issue is that the outcome is so binary, it could play in your favor or ruin your year end returns potential.”

European high-yield investors have made stellar returns this year, which at 8.8% marks the strongest year-to-date performance since 2012.
The bonds, which will be used to refinance existing debt, are expected to price Tuesday. Bookrunners on the deal are BNP Paribas, Citi and Goldman Sachs.