Spending A Languid Tuesday Morning — Talking Up Merck Debt, On The Phone — To Fellow-Traders? Price: $8.15 million!


I am actually a little ashamed to admit that I know just how little work it takes to place A1-rated corporate five- and ten- year paper.

And to be fair, it is true that — after the initial allocation — the smaller shops, each re-allocate the bite-sized bits of the deal’s tranches, and they may spend a few days on the phone, placing the re-allocated sercurities. That may involve some actual salesmanship — some real work.

But up at the top of the tombstone’s lede-table, the co-leads — J.P Morgan, and Banc of America’s Merrill Lynch imprint (as well as the recently added Citigroup) — likely spent only about half of the morning, and part of the afternoon, on Tuesday, making calls. Making calls to place the initial, largest chunks of these two tranches — totalling $2 billion.

Selling Merck paper is truly a no-brainer — one could (almost) literally fax the calls in, and get the sale, just as easily. [I’ll stop short of suggesting that a pack of lemurs could be trained to run the fax machines, and hit auto-dial, here — but see image at right, just the same(!).]

Afterall, Merck is only slightly less-creditworthy than the US government, yet the investor can make about three-quarters of a percent of extra yield, simply by accepting the nearly non-existent default risk presented by a $45 billion public company, which has just under SIX-times (see page 51 of the most recent Merck SEC Form 10-Q: 1/.168 = 5.952) as much unrestricted free equity, as it has debt and on balance-sheet liabilities. Like I said — a no brainer.

From the final prospectus, then — at page S-18:

. . . .The following table shows the underwriting discounts that we will pay to the underwriters in connection with the offering of the notes:

2016 notes | Per note: 0.350%
Total: $2,975,000

2021 notes | Per note: 0.450%
Total: $5,175,000

Grand Total: $8,150,000. . . .

Expenses associated with this offering to be paid by us, other than underwriting discounts, are estimated to be approximately $1.1 million. . . .

My reaction? Great work — if you can get it — at BofA’s Merrill Lynch, J.P. Morgan and Citi (a subsequent top tier addition to the Merck 2010 debt deal bookrunners). Now, can someone from “Madagascar 2” come collect this lil’ fellow?

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s