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CVS Offers $40 Billion of Debt in Third-Largest Bond Sale

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CVS Health Corp. kicked off one of the biggest corporate bond sales on record to fund its acquisition of Aetna Inc., offering $40 billion of the investment grade debt.

The blockbuster deal comes as investment-grade bonds have had their worst start to the year in decades. Yields on high-grade bonds have risen half a percentage point since the start of 2018, pushing up the cost of debt financing and lowering issuance overall. With average yields still close to unprecedented lows, companies are turning to debt markets to fund their acquisitions. The extra yield investors demand to hold the debt over Treasuries widened to 1 percentage point on Friday as investors made way for the expected jumbo deal.

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The pharmacy giant is selling fixed and floating-rate senior unsecured bonds in as many as nine parts, according to a person with knowledge of the matter. The longest portion of the offering, a 30-year security, may yield 1.95 percentage points above Treasuries, the person said, asking not to be identified as the details are private. CVS gathered $49 billion in bridge loans from 20 lenders in December as temporary financing for the acquisition, setting up for Tuesday’s transaction.

CVS said it was targeting as much as $44.8 billion of new debt, according to a Feb. 26 presentation.

The company is trying to win regulatory approval for its plan to buy Aetna for $67.5 billion, which will bring together around 10,000 CVS stores and Aetna’s 22 million customers. The deal is among the biggest health care mergers of the past decade and would create a behemoth that will try to shift some of Aetna customers’ care away from doctors and hospitals and into thousands of CVS stores. The merger is expected to close in the second half of this year.

Working in CVS’s favor is that most investors will view it as a health care name instead of a retail one, said Mickey Chadha, an analyst at Moody’s Investors Service. The completion of the acquisition will likely result in a one-notch downgrade to the current Baa1 rating, three steps above speculative-grade, Chadha said.

“It’s a strategic, sound transaction for the longer-term, but CVS has to integrate another company that has not necessarily been done before between a retailer and an insurance company,” he said. “There are elevated risks in terms of that execution.”

Verizon Communications Inc. set the record with its $49 billion offering to buy out Vodafone Group PLC’s stake in Verizon Wireless in 2013, followed by Anheuser-Busch InBev NV’s $46 billion sale to purchase SABMiller PLC in 2016. Broadcom Ltd. last month lined up as much as $106 billion of debt financing to back its proposed acquisition of Qualcomm Inc., but the target company has rejected several offers and no debt has been offered yet.

Bank of America Corp., Barclays PLC, Goldman Sachs Group Inc., JPMorgan Chase & Co. and Wells Fargo & Co. are managing the bond sale, the person said.

—With assistance from Brian Smith and Kenneth Pringle.

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