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Takeda Pharmaceutical [TYO:4502], which is planning to tap bond markets to finance its acquisition of Shire [LON:SHP], will have to issue its reported USD 15bn dollar-denominated bond at a concession for the offering to be deemed attractive, said two fixed-income portfolio managers.

The first portfolio manager said he was fairly sceptical of the issue because Takeda is layering on a lot of debt and will have a stretched balance sheet.

Takeda plans to issue up to USD 20bn in bonds to replace some of the USD 30.8bn (JPY 3.36trn) of bridge loans it has borrowed from JP Morgan and others to finance its takeover of Ireland-based Shire, according to Japanese media reports. Takeda is expected to issue USD 15bn in dollar-denominated bonds and USD 4.5bn (JPY 499.5bn) in yen-denominated subordinated bonds.

The potential bond issuance comes as Takeda minority shareholders have raised objections to the deal, partly on concerns additional leverage could impair Takeda’s ability to pay its dividend. The acquirer’s shareholders will vote on whether to issue equity to fund the proposed merger; the measure requires a two-thirds threshold. A vote earlier this year that would have restricted Takeda’s board’s ability to ink large deals failed with only 10% shareholder support.

Both portfolio managers said there was a price for everything and there would be interest in Takeda’s bond offering if it were priced correctly.

However, the first portfolio manager did note that concessions on Takeda’s dollar-denominated bonds would have to be “sizeable.”

Long-term fundamentals in the pharma sector, including regulatory risks, were a concern, this portfolio manager said, adding that he was not convinced of the underlying fundamentals of the Shire/Takeda deal.

The offering wouldn’t be high on his conviction list, he said, while conceding that the market might take a different view.

Takeda's pro forma gross debt/EBITDA will almost double to about 6x, ratings agency Moody’s has previously warned . Takeda itself has said the bridge loan will push up its debt-to-EBITDA ratio to 4x-5x.

However, Takeda, which has said it wants to maintain its investment grade rating, has said it will bring its leverage down to 2.0x or lower in the medium term.

Cash flow generation from the acquisition is expected to help Takeda deliver, company executives previously said. The company has also said it will divest poorly performing non-core assets, while continuing to focus R&D efforts on its core therapeutic areas of oncology, gastroenterology and the central nervous system.

Given that Takeda has a single ‘A’ credit rating, if the company offered a 10-15 basis point concession on its existing yield, then its bond offering would be viewed as a good deal, said the second fund manager.

It is possible that Takeda and its lenders could roll over bridge loans if they cannot find buyers for the bonds, thought it remains unclear whether an extension would be necessary, this news service reported last month.

Takeda has previously said it expects to refinance the bridge facility before deal closing with a combination of long-term debt, hybrid capital and cash.

A fair amount of the leverage Takeda is taking on to fund its acquisition of Shire is already priced into its existing debt, said the second portfolio manager.

The company has one outstanding US bond due in 2022 and spreads on that bond have already risen to account for the “meaningful debt accretion” from the Shire deal, the second portfolio manager noted.

Appetite for Takeda’s JPY 499.5bn (USD 4.5bn) yen-denominated subordinated bond offering plan will likely be buoyed by investors awash with cash, as long as the offering is correctly priced, and its timing is right, bankers have previously told this news service.

Takeda did not respond to requests for comment. Shire declined to comment.