The graphic at right depicts the proportions, by maturity schedule, of the various debt tranches -- as ever, click it to enlarge. As the AP reported overnight, Merck did go ahead and price the unsecured debt offerings it opened yesterday:
. . . .The company is offering $1.25 billion of 1.875 percent notes due 2011, $1 billion of 4 percent notes due 2015, $1.25 billion of 5 percent notes due 2019, and $750,000 of 5.85 percent notes due 2039. . . .
The closing of the offering will terminate the commitments of lenders and the company's related obligations pursuant to a $3 billion bridge loan. It also will reduce the commitments of lenders under the asset sale facility by about $375 million. . . .
This offering takes the bank syndicate "off the hook" for a large chunk of the merger financing. It effectively places, in the public's hands, the risk of a non-completion of the deal. That is a wise move by the bankers. In aggregate, remember, these bankers will likely make about $100 million in fees for advising on this deal.
As of June 25, 2009, the bankers' exposure here will be greatly diminished [full Pricing Term Sheet, as filed with the SEC, here], should the proposed reverse merger transaction not be completed. Afterall, the reason these interest rates are available to Sch-Merck -- and attractive to the public bondholders buying in the offerings -- is that everyone assumes the deal will close. Should that turn out not to be the case -- it is unlikely that Merck would be able to effectively service the debt, and still maintain its presently-envisioned capital structure, intact. Net-net: A smart move on the part of the banks.
Finally, while the offerings have been rated Aa3/AA-, there had been some talk, yesterday (now silenced) that Merck's near term credit rating/outlook would be "negative" -- meaning that the rating agencies might be rethinking their ratings on Merck's corporate debt, and thus could announce a change at any time. Just FYI, Mr. and Ms. Merck/Schering-Plough Bondholder.
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