$600m (+100m) 2 tranche sen unsec cb coming tomorrow from MS/BARC Terms: <5y> 1⅝-2⅛% <7y> 2⅛-2⅝% up 27½-32½%,full pctns.UOP= OPTR/TSRX acq/cb hedge. OPTR acq=earnings accretive thru Dificil but our analyst is less enthused by the TSRX acq given generic competition over it’s main Tedzolid antibiotic. PFcash=890m,debt =1.05bn, LTMebitda=196m, FCF=150m. OPTR=credit +ve, we’d assume
L+450/500 respectively (see CREDIT COLOR). ADV=820k, no leaps, s/term acq vol spike but improving credit so we’d cap vol at 32. Theo=<5>=101.2/103.2/105.2 <7>=100.7/103.2/105.7. Mkt needs more of the same w/clear broad appeal 4 both o/r & hedge. A single $600m deal preferable over 2 tranches given UBS index support but this deal in either form is going to perform well.
Cap Structure (PF 6/30/13)
Cash 890mm
2.5% Convert 450mm
New Converts 600mm Total Debt 1050mm
LTM EBITDA 196mm
Gross Leverage 5.3x
LTM FCF 150mm
– CBST is a major player in anti-invectives. Its main drug (95% of revs) is Cubicin. Cubinin is indicated for treatment of skin infections and gram positive bacteria infections.
– The use of proceeds is to fund the purchase of OPTR and TSRX (and a call spread). OPTR main drug is Dificid. Dificid treats diarrhea cause by C Diff (a bacteria people generally pick up after surgery). C Diff has become more virulent since the 90s and 5% of patients die after contracting it. Our equity analyst is “perplexed” by the TSRX acquisition as they are facing nearer term generic competition. Last week, a competitor also filed to make a generic form of Cubicin.
– With a ton of cash on balance sheet, and strong FCF (which will go lower after closing of OPTR/TSRX deals, as they currently burn cash) the credit is fairly strong. Generic competition is always a concern.
– OUR ASSIGNED CREDIT SPREADS—> 450 AND 500 (5 AND 7 YEAR, RESPECTIVELY).