The Bank of America Merrill Lynch-led transaction will hike merger and acquisition-related volume of investment grade deals after issuance dropped to US$28.5bn in the first quarter from US$46.6bn in the fourth quarter of 2015 and US$71.6bn in the third quarter of last year.

Abbott’s new loan will bring bridge loan volume to US$24.5bn early in the second quarter of 2016, surpassing the US$15.3bn seen last quarter.

Freeman Consulting Services estimate the fees for the US$17.2bn bridge to be between US$50m to US$75m.

“If this is a catalyst to jumpstart the market, that’d be great,” a banker said.

Abbott will assume or refinance St. Jude's net debt, which is currently US$5.7bn.

STILL I-GRADE

Abbott is still in the process of completing the US$8.5bn acquisition of Alere Inc, provider of health information through diagnostic tests, announced in February.

The significant debt component would bring leverage to 5.0 times, according to an Intraday comment issued by Carol Levenson, director of research at Gimme Credit. Leverage was about 2.0 times before either of the two pending acquisitions as of the last published balance sheet in December, Levenson said in a follow-up email.

An Abbott conference call transcript Thursday morning indicated the company remains committed to maintaining an investment grade credit rating by deleveraging the combined entity.

“Abbott appears to have brokered the financing structure with the rating agencies to preserve investment grade ratings,” Levenson said in the note. “The consideration is balanced between cash and equity, with a strong 45% equity component.”

In order to further rebalance its capital structure, Abbott also expects to issue US$3bn of common stock, according to the transcript.

“Although modestly dilutive to Abbott's adjusted earnings per share, this issuance provides important financial flexibility and liquidity to achieve our broader business objectives,” said Brian Yoor, Abbott’s senior vice president and chief investment officer, on the call.

Standard & Poor’s Ratings Service said in a note Thursday it kept Abbott Laboratories’ A+ rating on CreditWatch with negative implications where it placed it in February following the Alere acquisition announcement.

M&A UPSWING

The St. Jude acquisition announcement raised questions among analysts listening to the call on how Abbott’s pending US$8.5bn purchase of Alere fits into the picture. Abbott financed the Alere transaction with a US$9bn bridge loan that closed in February.

Moody’s Investors Service placed Abbott 's A2 senior unsecured on review for downgrade following the Alere combination news in February.

“There is no relationship between Alere and St. Jude here in any of this,” said Miles White, Abbott’s chairman and chief operating officer, on the call. “These are completely independent events. And yet the company can finance both and remain investment grade, we are quite confident.”

“Alere still seems to be ‘on’ for the moment, as management said the financing it has lined up is sufficient for both deals,” said Levenson in her intraday comment.

As per the terms of the acquisition announced Thursday, St. Jude shareholders will receive US$46.75 in cash and 0.8708 Abbott shares, representing a total consideration of about US$85 per share.

The offer represents a 37% premium to St. Jude's Wednesday closing.

St. Jude's shares were trading up more than 27% from Wednesday, at US$78.44 late Thursday.

The deal will add to Abbott's adjusted earnings per share in the first full year after the close of the transaction, the company said. It will add 21 cents per share in 2017 and 29 cents in 2018.

Abbott's cardiovascular device unit will have annual sales of US$8.7bn after the businesses are combined.

Bank of America Merrill Lynch declined to comment. Abbott did not provide comment beyond the press release.

St. Jude and Alere were not immediately available for comment.

(Reporting by Michelle Sierra; Additional reporting by Karen Schwartz; Editing By Lynn Adler and Jon Methven)

By Michelle Sierra