On August 12, 2024, Eli Lilly & Co. completed a $5 billion bond issuance to finance its $3.2 billion acquisition of Morphic Holding Inc., a company specializing in treatments for inflammatory bowel disease and other chronic conditions. This strategic move aims to bolster Lilly’s portfolio with Morphic's experimental therapies.
The bond sale was structured in five tranches, including a significant 40-year note. This long-term bond was priced with a yield 1 percentage point above Treasury rates, slightly below initial discussions of 1.3 percentage points. Despite the recent turbulence in global markets and heightened recession concerns, Lilly's bond issuance proceeded as part of a broader trend where 16 issuers entered the U.S. high-grade bond market on the same day.
Market Context:
The bond sale came amid a challenging week for global financial markets, which saw increased credit risk measures and a halt in U.S. corporate bond sales following a weaker-than-expected U.S. jobs report for July. The report fueled recession fears and speculation about accelerated Federal Reserve interest rate cuts. However, by later in the week, market conditions improved, with bond spreads narrowing and issuance activity resuming.
Analyst Insight:
CreditSights analysts Eric Axon and Patrick Cunniff highlighted the bond issuance as an attractive investment opportunity, noting Lilly's strong revenue generation from its GLP-1 medications, which collectively earned $4.3 billion in the second quarter of 2024. They anticipate continued growth for Lilly, driven by improving insurance coverage for its treatments.
Usage of Proceeds:
Beyond funding the Morphic acquisition, any remaining proceeds from the bond sale may be allocated towards refinancing existing commercial paper, enhancing Lilly’s financial flexibility.
Outlook:
The Morphic acquisition, expected to close in the third quarter of 2024, is poised to enhance Lilly's capabilities in treating chronic diseases, contributing to long-term growth and stability.
The bond sale was structured in five tranches, including a significant 40-year note. This long-term bond was priced with a yield 1 percentage point above Treasury rates, slightly below initial discussions of 1.3 percentage points. Despite the recent turbulence in global markets and heightened recession concerns, Lilly's bond issuance proceeded as part of a broader trend where 16 issuers entered the U.S. high-grade bond market on the same day.
Market Context:
The bond sale came amid a challenging week for global financial markets, which saw increased credit risk measures and a halt in U.S. corporate bond sales following a weaker-than-expected U.S. jobs report for July. The report fueled recession fears and speculation about accelerated Federal Reserve interest rate cuts. However, by later in the week, market conditions improved, with bond spreads narrowing and issuance activity resuming.
Analyst Insight:
CreditSights analysts Eric Axon and Patrick Cunniff highlighted the bond issuance as an attractive investment opportunity, noting Lilly's strong revenue generation from its GLP-1 medications, which collectively earned $4.3 billion in the second quarter of 2024. They anticipate continued growth for Lilly, driven by improving insurance coverage for its treatments.
Usage of Proceeds:
Beyond funding the Morphic acquisition, any remaining proceeds from the bond sale may be allocated towards refinancing existing commercial paper, enhancing Lilly’s financial flexibility.
Outlook:
The Morphic acquisition, expected to close in the third quarter of 2024, is poised to enhance Lilly's capabilities in treating chronic diseases, contributing to long-term growth and stability.