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No More Than A Knee-Jerk Reaction

29 January 2019 by lberuti

TACHEM ( Takeda Pharmaceutical Co Ltd ) entered the Japanese credit index benchmark (aka iTraxx Japan) last September. Since then, its risk premium has embarked on a fairly bumpy ride as the company announced towards the end of 2018 that it was taking over UK-based pharmaceutical Shire for $62Bln, in one of the largest deals of the year. The deal which closed early January propelled it among the 10 biggest drug makers by sales, but also more than doubled the Japanese firm’s borrowing levels. The management massaged credit investors and said they intend to move quickly on asset sales as part of a deleveraging plan. They laid out a scenario for $10Bln of potential divestments and stressed the importance of maintaining an investment grade rating, after both Moody’s and S&P lowered the company’s rating over the last few weeks. They did a decent job, and TACHEM’s 5-year risk premium that peaked at 100bps in December closed at 62bps last Friday. But yesterday, TACHEM was rumoured to plan the sale of as much as 500Bln yen (€4Bln) of hybrid notes as early as April to extend its debt maturities. There was a knee-jerk reaction that sent the 5-year CDS at 74bps, but today normal service resume and it closed at 63bps, only a few bps away from last fall’s tightest levels.