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Medtronic set to price biggest corporate bond deal of year

By Danielle Robinson NEW YORK, Dec 1 (IFR) - Medical device maker Medtronic has pulled in guidance on a jumbo acquisition finance bond by 10-20bp, after receiving at least US$45bn of orders, according to investors.

Market participants expect the deal to be about US$15bn-US$16bn, which would cover the cash portion of the financing for Medtronic's US$42.9bn acquisition of Covidien in the UK.

That would make it the biggest investment-grade corporate bond issue of the year, trumping Apple's US$12bn offering in April, Oracle's US$10bn transaction in June and Alibaba's US$8bn debut last month.

Originally, Medtronic intended to issue just US$2.8bn of debt for a tax-inversion purchase of Covidien, which would have given it tax efficient access to its offshore cash to pay for the deal.

Its debt needs ballooned, however, after the US plugged the tax loophole, which had sparked a rush of US companies looking to move their tax home offshore by acquiring non-US entities in jurisdictions with much lower tax rates.

Despite the surge in debt, however, investors are still enamoured with the strong single-A rating of the pro-forma company.

Some investors still think the spreads indicated at the guidance stage were still attractive.

"It's a pretty attractive deal," said one market participant on the buy-side. "Medtronic is a single-A rated name and if you are trying to operate as a long-term investor, it's a strong credit." Moody's said in October that Medtronic's A2 senior unsecured rating was likely to fall to A3, and its commercial paper rating to Prime-2.

Meanwhile, S&P said it may downgrade Medtronic's AA- rating by two notches to A once the acquisition closes.

Bank of America Merrill Lynch, Deutsche Bank and JP Morgan expect to price the bond on Monday afternoon. The transaction is broken into seven tranches including six fixed-rate bonds of three, five, seven, 10, 20 and 30-year notes, and a five-year floating rate note.

Tranche details are below: TRANCHE SIZE IPTS GUIDANCE ($) 3yr FIXED Bmrk T+ 95bpa T+75bpa 5yr FIXED Bmrk T+125bpa T+105bpa 5yr FRN Bmrk Libor equiv Libor equiv 7yr FIXED Bmrk T+140bpa T+130bpa 10yr FIXED Bmrk T+155bpa T+145bpa 20yr FIXED Bmrk T+170bpa T+155bpa 30yr FIXED Bmrk T+190bpa T+175bpa (Reporting by Danielle Robinson; Editing by Natalie Harrison and Shankar Ramakrishnan)