Business Context and Reporting Period
This Form 8-K Current Report, filed on February 28, 2011, by McKesson Corporation, discloses the entry into a material definitive agreement and the creation of a direct financial obligation. The report details a debt offering executed on February 23, 2011, involving the issuance of three series of senior unsecured notes.
Key Financial Metrics and Debt Structure
The Company issued a total of $1.7 billion in aggregate principal amount of notes, structured as follows:
- 2016 Notes: $600 million principal, 3.25% interest rate, maturing March 1, 2016.
- 2021 Notes: $600 million principal, 4.75% interest rate, maturing March 1, 2021.
- 2041 Notes: $500 million principal, 6.00% interest rate, maturing March 1, 2041.
Interest is payable semiannually on March 1 and September 1, commencing September 1, 2011. The notes were sold at public offering prices of 99.661%, 99.693%, and 98.536% of principal, respectively. The Company expects to receive net proceeds of approximately $1,677 million before expenses.
Material Changes and Use of Proceeds
The primary material change is the increase in long-term debt obligations. The net proceeds from this offering are designated for general corporate purposes, specifically including the repayment of borrowings outstanding under the Company's Senior Bridge Term Loan Agreement with Bank of America, N.A.
Terms, Covenants, and Risks
Redemption and Make-Whole Provisions: The Company may redeem the notes prior to maturity with a make-whole premium, subject to specific exceptions. No make-whole premium applies to the 2021 Notes redeemed on or after December 1, 2020, or the 2041 Notes redeemed on or after September 1, 2040.
Covenants: The Indenture includes limitations on creating liens on assets, entering into sale and leaseback transactions, and consolidating or merging, subject to exceptions.
Change of Control: In the event of a change of control and a subsequent downgrade of the notes below investment grade by Fitch, Moody's, and S&P, the Company must offer to repurchase the notes at 101% of the principal amount plus accrued interest.
Ranking: The notes are unsecured and unsubordinated, ranking equally with all existing and future unsecured indebtedness.
Investor Verification Checklist
- Verify the exact amount of Senior Bridge Term Loan borrowings being repaid with the $1,677 million in net proceeds.
- Review the specific "make-whole" calculation methodology in the Supplemental Indenture (Exhibit 4.2) to understand early redemption costs.
- Confirm the Company's current credit ratings with Fitch, Moody's, and S&P to assess the risk of triggering the change of control repurchase provision.
- Examine the "limitations on liens" covenants to understand restrictions on future asset-backed financing.