Anthem Gets $26.5B Funding Commitment For Cigna Takeover

Anthem Inc.’s bid to become the largest health insurer in history is setting up one of the biggest debt offerings backing a takeover.

Anthem has received financing commitments of as much as $26.5 billion to finance the $48.4 billion purchase of Cigna Corp., according to a regulatory filing. That puts the size of the funding in the ranks of deals such as the $31 billion Charter Communications Inc. obtained to acquire Time Warner Cable Inc. and the $21 billion raised by Actavis Plc to buy Allergan Inc.

Anthem is poised to join seven other companies that have tapped the bond market for at least $10 billion to finance takeovers this year, according to data compiled by Bloomberg. More than $149 billion of bonds backing takeovers have been sold in 2015 after a record $160 billion of the debt was issued last year. The takeover is expected to close in the second half of 2016, pending regulatory approval.

“This is symptomatic of where we are in the credit cycle,” said Nicholas Elfner, head of corporate-bond research at Breckinridge Capital Advisors Inc., which manages $22 billion. “The larger the deals, the more aggressive the leveraging, the more compensation bondholders should be offered.”

Kristin Binns, a spokeswoman for Indianapolis-based Anthem, didn’t immediately comment.

Anthem’s acquisition extends a wave of consolidation sweeping over the health-care industry, potentially reducing the ranks of the biggest insurers from five to three. Together, Anthem and Cigna would have about 53 million members, more than UnitedHealth Group Inc., currently the largest U.S. health insurer. The deal is valued at $54.2 billion when including assumed debt.

Aetna Inc. agreed to buy Humana Inc. for $35 billion earlier this month, a day after Centene Corp. struck a $6.3 billion deal for Health Net Inc. President Barack Obama’s 2010 health-care overhaul is helping drive the mergers, in part by imposing tougher rules and limits on the industry’s profits.

“Consolidation will contribute to cost savings, revenue diversification and greater long term profitability,” at Anthem, Creditsights Inc. analysts led by Josh Esterov wrote in a note Monday. Still, Anthem may find itself paying a premium to borrow due to a “combination of higher leverage and record amount of bonds from the health care sector.”

Bank of America Corp., Credit Suisse Group AG and UBS Group AG are providing the financing in the form of a bridge loan, according to the filing. Bridge borrowings are typically replaced by issuing debt in the bond market.