Cigna Corp. sold $20 billion of bonds to fund its takeover of Express Scripts Holding Co., making for the U.S. corporate-bond market’s second-biggest of the year.
The health insurer issued senior unsecured bonds in 10 parts, according to a person with knowledge of the matter. The longest portion of the offering, a $3 billion security maturing in 2048, yields 1.87 percentage points above Treasuries, after initially discussing around 2.05 percentage points, said the person, who asked not to be identified because talks with potential investors are private.
The sale is leading what’s been a busy start to September, with some strategists already raising their monthly issuance estimates. Investors, anticipating that a bulging pipeline of M&A deals would bring a wave of debt sales after the summer lull, have been selling debt the past few weeks to make room for new securities, said Travis King, head of investment-grade credit at Voya Investment Management in Atlanta.
“It’s the kind of deal where everyone is going to feel that they need to own this,” King said before the deal priced. “It’s one of those classic mega deals that gets everyone’s attention.”
The expected boost in new-issue supply helped boost the amount of yield investors demand to hold corporates instead of government debt, Bloomberg Barclays index data show. Investment-grade bond spreads over Treasuries have widened by 6 basis points since the end of July to 115 basis points.
Cigna agreed in March to buy Express Scripts for $54 billion in an attempt to save money for clients by bringing two branches of the health care services sector under one roof. The deal is nearing regulatory approval, and shareholders have already cast votes in favor of the combination. Activist investor Carl Icahn, who had said it would be a “travesty” if it were to proceed, dropped his fight to block the takeover last month.
At the time of the deal announcement, Cigna said it planned to issue $22.5 billion of new debt and commercial paper to fund the acquisition plus $26.6 billion of new equity, according to a presentation. Moody’s Investors Service, S&P Global Ratings and CreditSights said earlier Thursday the issuance could be $23.5 billion.