Medical device giant Stryker Corp. (NYSE: SYK) on Tuesday hit the credit markets in a big way, pricing $1 billion in senior unsecured notes.
The notes were floated in two tranches of $500 million earch — five-year notes with a 3 percent yield, or 55 basis points above the yield for five-year U.S. Treasury notes, and 10-year notes yielding 4.375 percent, or 75 basis points over the comparable Treasury rate.
Officials with Kalmazoo, Mich.-based Stryker did not specify how they intend to spend the new money, other than “general corporate purposes, including acquisitions, stock repurchases and other business opportunities,” according to a news release.
The company earlier Tuesday filed a shelf registration of securities under “Well-known Seasoned Issuer” rules, which do not require a dollar amount of the securities to be registered.
Ratings issuers gave Stryker high marks prior to the pricing, with Standard & Poor’s assigning an “A-plus,” its third-highest rating, indicating a “Strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions.” Moody’s Investors Service reaffirmed the “A3” rating Stryker has carried since a May, 2005, upgrade.
Both Moody’s and S&P cited Stryker’s strong market position in orthepedics and surgical products in their assessments. The firms also said Stryker has maintained relatively steady cash flow despite recent dips in hospital spending, although a Moody’s analyst also noted the company is not completely risk-free due to ongoing regulatory actions such as last month’s Class I recall of Stryker’s computer-aided surgery platform.
Until now, Stryker had generally stuck to a “pay-as-you-go” policy, using its ample cash reserves or issuing stock to finance acquisitions and other corporate activities. The company had $960 million in cash on the books on Sept. 30, 2009, along with nearly another $2 billion in marketable securities, while carrying only $18.2 million in debt.
“This transaction signals a shift in Stryker’s financial policies as permanent debt is added to its balance sheet,” said Diana Lee, a senior credit officer at Moody’s.
Underwriters for the deals were Bank of America Merrill Lynch, Barclays Capital and Wells Fargo Securities.
