CVS Health Corp.’s outstanding bonds fell Tuesday, as the company completed an offering of $40 billion in new debt to be used to finance the company’s proposed acquisition of Aetna Corp.

The drugstore chain and pharmacy-benefit manager CVS, -1.41% said in December that it had reached an agreement to acquire health insurer Aetna US:AET for about $69 billion, in a deal expected to mark a shift away from pharmacy-benefit managers, or PBMs, which negotiate drug prices and have long been a feature of America’s health-care system.

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Regulators are not expected to approve the deal until later in the year, but CVS is understood to be moving ahead with the acquisition financing to get ahead of higher interest rates expected later in the year, which would make the takeover more expensive.

Moody’s Investors Service assigned a Baa1 rating to the deal and said it remains on review for downgrade, given how much debt it will add to CVS’s balance sheet. A downgrade would push the rating closer to speculative-grade, or “junk,” status, raising borrowing costs.

“The combination of CVS and Aetna will create a one-of-a-kind vertically integrated health-care company with huge scale and mark an industry shift toward a more seamless approach to managing health-care costs as it brings together the overall management of a patient’s medical bills and prescription drugs under one umbrella,” Moody’s Vice President Mickey Chadha said in a note. “However, the transaction will result in significant weakening of CVS’s credit metrics as it will be financed with a large amount of debt and will come with high execution and integration risks.”

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CVS to acquire health insurer Aetna

Moody’s is expecting that if the deal is approved based on current terms, and CVS commits to maintaining a strong investment-grade capital structure, it will still lower the rating by one notch to Baa2 with a negative outlook. That would place it just two notches above junk.

The deal comprised nine tranches of two-year fixed and floating-rate notes, three-year fixed and floating rate notes, five-year, seven-year, 10-year, 20-year and 30-year fixed-rate notes, pricing at the tight end of guidance, according to CreditSights.

CreditSight analysts said they are looking for the deal to offer at least 10 to 20 basis points of yield above peer Walgreens Boots Alliance Inc. WBA, -3.12% to offer value, and said the pricing showed that level of spread across most of the curve.

“We would be buyers of the new deal,” said analyst James Goldstein.

For those investors concerned about integration risk, “there is ample opportunity in the short end of the curve—with the two-year notes likely to see just over a year of “action” in the higher-leverage integration period assuming the deal closes at the end of 2018.”

Still, Goldstein noted that leverage will jump more than a turn and a half to 4.6 times once the deal closes.

In its bond prospectus, CVS offered an aggressive plan to reduce leverage to 3.5 times lease adjusted leverage within two years of the deal’s closing. Cash flow that was intended for shareholder returns will be redirected toward debt reduction, along with some of the company’s expected savings from the recent U.S. tax overhaul.

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“However, we see a need for an additional roughly $2 billion a year of debt pay-down to support reaching the target without aggressive underlying [earnings before interest, taxes, depreciation and amortization] growth,” CreditSights analyst James Goldstein wrote in a research note before the deal priced on Tuesday.

If the deal falls through, CVS will redeem most of the debt. The Justice Department has not been vocal about its views on the deal, although other signals from Washington suggest it will not meet with too much political resistance, said Goldstein.

CVS 3.875% notes that mature in July of 2025 were trading about 4 basis points wider on the day, according to MarketAxess. The most active notes, the 5.125% notes that mature in July of 2045, were 7 basis points wider, according to MarketAxess.

On the equity side, CVS shares are down 9% in the last month, and have fallen 16% in the last 12 months, underperforming the S&P 500’s SPX, -1.72% 15% gain and the Dow Jones Industrial Average’s DJIA, -2.31% 19% gain.

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