Medtronic Secures Financing for Covidien Deal

Medtronic has landed the $16.3 billion in loans it needs to continue with its $43 billion purchase of Covidien, according to a filing with the Securities and Exchange Commission.

On November 7, the Fridley, MN-based medtech giant inked a 364-day bridge loan for $11.3 billion in unsecured debt. On the same day, it landed a three-year, $5-billion term loan, the filing said. Bank of America will act as administrative agent for both loan agreements.

In light of the new loans, Medtronic terminated $2.8 billion in unsecured bridge loans it had agreed to borrow on June 15, the day the acquisition was announced, the SEC filing says. Medtronic terminated $13.5 billion in 60-day unsecured bridge loans borrowed on the same day.

Securing the new funding means Medtronic can go ahead with its purchase of Covidien, based in Dublin, Ireland. Medtronic, which had initially planned to use its own foreign reserves to complete the deal interest-free, chose to borrow the money after the U.S. Treasury Department cracked down on so-called inversion deals in August. Inversions allow U.S. corporationsto move foreign earnings back into the country without paying U.S. corporate taxes.

In a previous SEC filing, Medtronic said it expects to pay 4% to 4.5% in interest on the debt. Medtronic's annual interest payments will tally tens of millions of dollars.

The purchase is the largest acquisition of a foreign firm by a U.S. company, based on Standard & Poor's Capital IQ data. Expected to close by early 2015, the deal stands to make Medtronic, which was already the fourth largest medical device firm, even more competitive, putting it roughly on par with Johnson & Johnson's medical device business--now the biggest in the world.

With total revenue of $14.3 billion, Covidien is a heavyweight in its own right, ranking as the eighth largest device company. In the same period, Medtronic's total revenue was $16.7 billion. The merger will give the firm 87,000 employees based throughout more than 150 countries.

The day after the acquisition was announced, Standard & Poor's gave Medtronic an 'AA-' corporate credit rating and placed it on CreditWatch, pending the acquisition's completion. In October, the ratings company said it expects to lower Medtronic's corporate credit rating by two notches to "A" and to lower the short-term rating to "A-1" "if the transaction is consummated as expected.

In late October, Moody Investors Service said Medtronic's ratings are likely to fall to A3/Prime-2 because it must borrow money to complete the deal.

Nancy Crotti is a contributor to Qmed and MPMN.

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