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By Shankar Ramakrishnan
Nov 22 (Reuters) – Bayer held a call with
investors on Monday after a raft of bad news led some of them to
question whether the German group had been upfront about its
prospects ahead of a $5.75 billion bond issuance, three sources
familiar with the situation said on Wednesday.
The bad news prompted some bond investors to question
whether Bayer should sweeten the terms of the deal or outright
pull it, one of the sources said.
The drug-to-pesticides group priced the investment grade
bond on Thursday last week, with the deal closing on Tuesday.
On Sunday, it was hit by a major drug development setback
when it aborted a large late-stage trial testing a new
anti-clotting drug, that promised billions in revenue, acting on
recommendation by an independent trial monitoring board.
Then in two separate lawsuits, Bayer was ordered on
Friday to pay $1.56 billion to plaintiffs over its Roundup
weed-killer, followed by another order on Monday to pay $165
million to employees of a school northeast of Seattle.
“From our conversations with clients, many are angry and are
seriously wondering whether Bayer management rushed to bring the
deal ahead of the news,” said Andrew Brady, CreditSights head of
basic industries research, referring to investors.
A Bayer spokesperson declined comment.
The company’s bankers held a call with some of the top
investors on Monday in a bid to placate them, two of the sources
said.
On the call, the investors asked for clarity on whether the
bad news would have material impact on the company’s earnings,
one of the sources said. The company told investors it had
reserves to deal with Roundup litigation, and could not have
predicted the jury verdicts, the source said.
It is rare for investment-grade bonds to be pulled after
they have priced, according to the sources, who are market
participants.
In March 2021, Nomura Holdings flagged a possible $2 billion
loss at a U.S. subsidiary, and shelved a hefty bond issuance.
Bayer priced bonds with maturities between three to 30
years. It was the 10th largest investment grade bond deal by an
industrial company this year and attracted more than $22 billion
in orders, according to Informa Global Markets.
Citigroup, JP Morgan, SMBC Nikko Securities
America and Wells Fargo were the bookrunners
on the deal.
All the banks declined comment.
The credit spreads, or the premium charged over Treasuries,
on some of the bonds on Wednesday were bid 5 basis points to 23
basis points wider than where they priced last Thursday.
The events were “not enough to trigger a material adverse
change clause in bond documents for investors to ask to be paid
back,” said CreditSights’ Brady.
(Reporting by Shankar Ramakrishnan; additional reporting by
Ludwig Burger and Mike Erman; editing by Paritosh Bansal and
Marguerita Choy)