HG bonds: Siemens launches $10B bond offering backing Varian acquisition

Siemens AG, via its subsidiary Siemens Financieringsmaatschappij NV, has launched a $10 billion offering in seven tranches of senior notes, according to market sources. Proceeds will be used to back a planned $16.4 billion acquisition of global radiation therapy concern Varian Medical Systems Inc.

The offering is across $1.25 billion of 2-year notes at T+30, $1.5 billion of 3-year fixed-rate notes at T+40; $1 billion of 3-year floating-rate notes at 43 basis points over the Secured overnight financing rate; $1.75 billion of 5-year notes at T+55; $1.25 billion of 7-year notes at T+65; $1.75 billion of 10-year notes at T+75; and $1.5 billion of 20-year bonds at T+80.

Bookrunners for the proposed notes offering, which is expected to price today, are Citi, J.P. Morgan, Mizuho, Morgan Stanley, RBC and TD Securities.

Among 2021 bond offerings, today's launch size trails only a $14 billion print for Apple Inc. on Feb. 1 and a $10.95 billion placement from 7-Eleven Inc. on Jan. 27. Broadcom Inc. on Jan. 4 also completed a $10 billion offering.

Subsidiary Siemens Healthineers AG (SH) last summer announced that it would acquire 100% of Varian Medical Systems for roughly $16.4 billion, about half of which was expected to be financed with debt and the balance with SH equity. Siemens' lack of participation in the planned equity increase is expected to dilute its stake in SH to 72%, from 85%. However, the debt capital was slated to come at the Siemens level, including a €15.2 billion bridge facility netted by Siemens, to be refinanced with dollar-denominated bonds, the proceeds of which would be loaned to SH on an intracompany level.

S&P Global Ratings and Moody's in early August 2020 changed the outlooks on their respective A+/A1 ratings to negative, from stable. "While Moody's acknowledges the strategic rationale of the acquisition to strengthen the market position and growth of SH in the field of oncology diagnostics and treatment, the outlook reflects weakened credit metrics as well as the integration and execution challenges linked to the acquisition," Moody's stated.

S&P Global Ratings said it expects that Siemens AG's credit metrics "will remain below our threshold of 45% funds from operations (FFO) to debt in fiscal 2021 (ending Sept. 30, 2020) before recovering to more than 50% in fiscal 2022." It cited expectations for "dynamic deleveraging" from the post-close projected metrics of pro forma adjusted leverage of about 2.3x and FFO to debt of about 35%, compared to about 2.0x and about 40%, respectively, in fiscal 2020.