Medtronic Sells $17B In Bonds, Outdoes Apple, Alibaba

By Jof Enriquez,
Follow me on Twitter @jofenriq

Medtronic Inc. recently sold $17 billion in dollar-denominated corporate bonds to help fund its planned acquisition of Irish-based hospital supplies manufacturer Covidien. The deal is slated to close by early next year.

The corporate bond sale ‒ which drew $45 billion in orders ‒ is the largest this year, trumping Apple’s $12 billion bond offering in April and Alibaba’s $8 billion bond sale last month, noted a report from the Wall Street Journal. Companies are continuing to take advantage of low interest rates, taking preference to higher yield U.S. corporate debt compared to Treasury and government bonds, the WSJ said. Investors who put in orders for the Medtronic bonds view the trend of corporations flocking to debt markets as favorable for Medtronic in the long run.

“The cost of financing is attractive for corporations,” Jerry Cudzil, head of U.S. credit trading at TCW, told the WSJ. “What this tells you is that the market remains fairly open.”

“We see a pretty significant upside in this if you look at other A-rated names in health care,” added Bert Zimmerman, who is a senior fixed income analyst at Principal Global Investors, according to the WSJ.

According to a Bloomberg report, Medtronic “sold $4 billion portions of 3.5 percent, 10-year and 4.625 percent, 30-year notes.” In addition, the company “offered $2.5 billion portions of 2.5 percent, five-year securities, 3.15 percent, seven-year debentures, and 4.375 percent, 20-year notes.” Finally, “Medtronic issued $1 billion of 1.5 percent, three-year bonds and $500 million of five-year, floating-rate debt,” according to Bloomberg’s data.

Medtronic originally planned to fund its proposed $43 billion merger with Covidien using its cash reserves from overseas, but new tax rules limiting access by U.S. companies to use cash held by their foreign subsidiaries via tax inversions had since forced the company to restructure the deal and borrow instead.

It had recently inked an $11.3 billion bridge loan and a three-year $5 billion loan to help fund the cash portion of the purchase. Medtronic and Covidien also recently gained regulatory approval for their merger from the U.S. Federal Trade Commission and foreign antitrust bodies, after Covidien agreed to sell its drug-coated balloon business.