CVS to tap high-grade bond market with five-part deal in busy day for issuance

By Ciara Linnane

Pharmacy chain's outstanding bonds see net buying ahead of new supply in bullish signal

CVS Health Corp. is tapping the investment-grade corporate bond market on Tuesday, with a five-part deal that's expected to price later in the day.

The drugstore and health-services chain (CVS) is planning to use the proceeds of the deal for general corporate purposes such as working capital and to repay outstanding debt, including notes that mature in 2024, it said in a regulatory filing.

Bank of America, Barclays, Goldman Sachs, J.P. Morgan and Wells Fargo are underwriting the deal, which comes on a day of solid buying of the company's outstanding bonds - a bullish signal ahead of new supply.

The following chart from data-solutions provider BondCliQ Media Services shows net client flows for the day so far.

CVS has more than $64 billion worth of outstanding debt, according to FactSet, of which more than $60 billion is in the form of bonds.

While CVS's stock has been under pressure since a quarterly earnings miss last week, many of the company's outstanding bonds are yielding more than 5%, after rising along with the movement in Treasurys this year.

The stock suffered its biggest selloff in 15 years on May 1, after the company's earnings were hit by its Medicare Advantage business. The company cut its full-year outlook for profit and cash flow, with "elevated medical cost trends" expected to persist through 2024.

Medicare Advantage providers have been hit by high utilization trends as patients are still catching up on surgeries and other treatments that were put on hold during the pandemic.

For more, read: CVS's stock suffers biggest drop in 15 years as Medicare Advantage issues weigh on results

The chart above shows CVS bond yields' steady move upward to as high as 5.57% on the 5.25% notes that mature in February 2033. The move has come directly because of the move in Treasury yields and not because of any credit-quality issues.

The new deal comes on what's expected to be a heavy day for corporate bond issuance, with at least 13 borrowers planning to tap the market, according to Bloomberg. That's after 14 issuers came to market on Monday to bring weekly volume to $13.6 billion.

CVS's stock is down 29% in the year to date, while the S&P 500 SPX has gained 9%.

Read also: These household-name companies have bonds yielding more than 5%

-Ciara Linnane

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05-07-24 1310ET

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