(Bloomberg) -- Eli Lilly & Co. is selling $5 billion of bonds on Monday to help fund its $3.2 billion acquisition of gut-drug maker Morphic Holding Inc., after recession fears triggered a turbulent week.
The company is selling bonds in five parts, according to a person with knowledge of the matter. The longest portion of the deal, a 40-year note, will yield 1 percentage point above Treasuries, after initial discussions of around 1.3 percentage point, the person added, asking not to be identified as the details are private.
A spokesperson for Lilly declined to comment.
Lilly is buying Morphic to gain experimental therapies for inflammatory bowel disease and other chronic illnesses, the companies said in a July 8 statement. The deal is expected to close in the third quarter, subject to customary closing conditions.
Lilly is among 16 potential borrowers looking to sell fresh debt in the US high-grade market on Monday. Companies are likely trying to get ahead of a heavy economic data week, with producer price index data due Tuesday, consumer price index data out Wednesday and retail sales data coming on Thursday.
Any remaining proceeds from Lilly's bond sale, after the company funds its acquisition, may go toward purposes including refinancing outstanding commercial paper.
The offering provides "an attractive opportunity to add exposure to one of the highest quality names in IG pharma," CreditSights analysts Eric Axon and Patrick Cunniff wrote in a Monday note. The analysts pointed out Lilly's GLP-1 medications collectively generated $4.3 billion of revenue in the second quarter.
"These assets are expected to fuel growth for many years to come, particularly as insurance coverage improves," wrote the analysts.
The issuance activity follows a turbulent week in global markets. Key measures of credit risk surged globally last Monday, with the turmoil shutting down US company bond sales, after the US jobs report for July showed hiring slowed markedly — raising recession concerns and pressuring the Federal Reserve to accelerate its pace of anticipated interest-rate cuts. But later in the week, spreads came in and issuance resumed. Average high-grade corporate bond yields have fallen in the last two weeks, giving companies a bit more incentive to sell bonds.
(Updates with launch details, CreditSights comments in seventh and eighth paragraphs.)
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