DRI Returns with $150M of Drug Royalty Cashflow ABS

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DRI Capital is marketing another $150 million of bonds backed by royalties flowing from pharmaceutical patents on established drugs, according to Kroll Bond Rating Agency.

The series 2017-1 notes will be issued from the same master trust as the series 2016-1 trust, which have an outstanding balance of approximately $116 million.

Proceeds from the notes will be used to acquire additional drug royalties, bringing the total discounted asset value of the portfolio to approximately $449.9 million. That is some 41% in excess of the combined balance of the two series of notes. Kroll expects to assign a BBB rating to the 2017-1 series, which is split into two $75 million tranches, both maturing in April 2027.

Goldman Sachs is the structuring agent and bookrunner.

Bonds backed by drug royalty cashflows are relatively rare, compared with bonds backed by more commoditized assets such as auto loans or student loans. However, this is DRI’s third trip to the securitization market since the financial crisis. The company  founded in 1992, is a global leader in healthcare investing focused on royalty streams on pharmaceutical products. Since 2005, it has issued over $1.6 billion in debt across eight securitizations, five of which have been repaid or refinanced.

The largest percentage of discounted royalty value in this portfolio comes from Keytruda (35.8%), humanized antibody used in cancer immunotherapy, followed by Odefsey (17.1%), a treatment for HIV infection and chronic hepatitis, and Eylea (14.5%), a treatment for wet macular degeneration.

In its presale report, Kroll described this product concentration as “meaningful,” but noted that most of the drugs are critical to maintaining a patient’s quality of life, and typically have leading market position with high barriers to entry.

The rating agency also pointed out that approximately 46% of the portfolio’s expected royalty stream is derived from outside of the United States, including from Europe and Japan, which provides diversity to the transaction cash flows.

Kroll believes that the risk of market withdrawal of drugs is remote based on the relatively small number of historical withdrawals that have occurred. And it believes that the seasoning of the drugs in the portfolio reduces the potential for unforeseen product liabilities and re


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