Business Context and Reporting Period
This Form 8-K Current Report, dated February 28, 2007, details a material definitive agreement entered into by McKesson Corporation. The filing reports the issuance of new debt securities to fund the repayment of an interim credit facility used for the acquisition of Per-Se Technologies, Inc.
Key Financial Metrics and Transaction Details
- Total Principal Amount: $1,000,000,000 aggregate principal amount of Notes.
- 2013 Notes: $500,000,000 principal amount; 5.25% annual interest rate; matures March 1, 2013.
- 2017 Notes: $500,000,000 principal amount; 5.70% annual interest rate; matures March 1, 2017.
- Net Proceeds: Approximately $990.7 million (before expenses).
- Public Offering Prices: 99.580% of principal for 2013 Notes; 99.835% of principal for 2017 Notes.
- Interest Payments: Payable semi-annually on March 1 and September 1, commencing September 1, 2007.
- Debt Structure: Unsecured and unsubordinated obligations ranking equally with existing unsecured indebtedness.
Material Changes and Use of Proceeds
The primary material change is the creation of a direct financial obligation totaling $1 billion. The Company intends to use the net proceeds from this offering, combined with cash on hand, to repay borrowings outstanding under an interim credit facility. This facility was originally established to fund a portion of the merger consideration for the recent acquisition of Per-Se Technologies, Inc.
Terms, Risks, and Covenants
- Redemption: The Company may redeem the Notes in whole or in part prior to maturity upon 30 days' notice at redemption prices including a make-whole premium.
- Covenants: The Indenture limits the Company's ability to incur liens, enter into sale and leaseback transactions, or consolidate/merge/sell substantially all assets, subject to cure periods.
- Change of Control: If a change of control occurs and the Notes are downgraded below investment grade by Fitch, Moody's, and S&P within a specified period, the Company must offer to repurchase the Notes at 101% of principal plus accrued interest.
- Underwriter Relationships: Certain underwriters and their affiliates have existing commercial relationships with the Company, including serving as lenders under the interim credit facility being repaid and acting as financial advisors for the Per-Se acquisition.
Investor Verification Checklist
- Verify the exact amount of interim credit facility debt being repaid versus the $990.7 million in net proceeds.
- Review the specific "make-whole premium" calculation methodology in the Indenture (Exhibit 4.1) to understand early redemption costs.
- Confirm the current credit ratings of the Notes to assess the trigger conditions for the change of control repurchase offer.
- Examine the impact of the new interest expense (5.25% and 5.70%) on the Company's future earnings and cash flow.