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Too Much And Not Enough?

23 May 2016 by lberuti

If you thought last week was slow, then what should be said about today? Volumes reported to DTCC were less than €2.5bln for iTraxx Main and hardly more than €500mln for iTraxx Crossover. So BAYNGR (Bayer AG) provided a welcome patch of activity after it announced its offer to acquire Monsanto for $122/share (or an enterprise value of $62bln) in an all cash transaction. BAYNGR intends to finance the operation with a combination of debt and equity. The equity portion should amount to $15.5bln and the company said they will use primarily senior debt to fund the transaction. They expect an investment grade rating immediately after the closing of the transaction, and target single A status in the long term if they were to be downgraded (S&P said they could lower BAYNGR’s rating by 2 notches to BBB depending on the final terms). While equity investors seem to think the price may not be enough to tempt Mosanto’s shareholders (the stock of the latter traded at $107, well short of the offer level, implying a fair degree of scepticism), credit investors seem to think the price is quite full and they sent BAYNGR’s 5 year risk premium 9bps wider at 67bps.