Why Banks Will Lend Billions for Pfizer Deal By MATTHEW KARNITSCHNIG and HEIDI N. MOORE Pfizer Inc.'s blockbuster $68 billion deal to buy Wyeth raised hopes that deal financing was back. But the $22.5 billion loan Pfizer negotiated doesn't mean credit has started flowing again. Pfizer confirmed Monday that it plans to buy Wyeth, paying for the acquisition with $22.5 billion in new debt and equal parts of cash and stock. But the pharmaceutical company -- considered among the corporate world's safest credit risks, with an investment-grade credit rating -- agreed to pay 7% to 9% on the loans, which come due in one year. And the lending syndicate behind the deal, which includes Bank of America Merrill Lynch, J.P. Morgan Chase & Co., Goldman Sachs Group Inc., Citigroup Inc. and Barclays Capital, received unusual safeguards that reflect the wary climate. They can walk from their financing commitment, for example, if Pfizer's credit rating drops below certain thresholds. In the past, sellers typically sought ironclad agreements that weren't contingent on bank financing or buyer credit ratings. That Wyeth agreed to such an arrangement, essentially putting its fate in the hands of ratings agencies, is a sign that sellers are coming to terms with new realities. "We realized there's a new world out there," said one person close to Wyeth. "You can't get blood from a stone." The merger agreement allows Wyeth to collect a $4.5 billion break-up fee -- about double the rate of the typical penalty -- if Pfizer's ratings are cut and the banks don't lend. That condition indicates banks are trying to stamp out ambiguities in big merger contracts. For the past 18 months, banks have been pitted against clients in legal disputes over the financing of wayward deals. Monday, Standard & Poor's Ratings Services put Pfizer's triple-A credit rating on watch for downgrade after news of the deal. It said it expects to lower Pfizer's rating to double-A if the drug maker completes the deal as planned because of the added leverage and the challenge of medium-term patent expirations on important products. Wyeth's long-term credit rating is single-A-plus, just one notch above the minimum required under Pfizer's financing deal. Shares in Pfizer fell $1.80, or 10%, to $15.65 at 4 p.m. Monday in composite trading on the New York Stock Exchange. After a year, Pfizer expects to refinance its $22.5 billion bridge loan with high-grade bonds, according to several people familiar with the matter. Pfizer and Wyeth began their contacts during the summer. But the terms for Pfizer got tougher in the fall as the talks intensified and the collapse of Lehman Brothers wiped out most loan activity. "Introducing a ratings condition was not popular, but they took comfort in the high credit quality of Pfizer," one person said of Wyeth. Write to Matthew Karnitschnig at [email protected]
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