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September 7, 2013 12:08 am
Verizon is contemplating the sale of bonds with maturities of up to 100 years as it seeks to raise financing for its $130bn acquisition of Vodafone’s 45 per cent stake in Verizon Wireless, according to people familiar with the deal.
In what is shaping up as the largest corporate bond sale ever, the company may raise up to $50bn in the coming weeks, with longer-dated maturities expected to account for a larger than usual part of the deal, these people said. Marketing of the securities to US fixed-income investors will start on Monday, they added.
Verizon has a large amount of outstanding debt and there is a concern that selling a hefty amount of 10-year debt, the most popular corporate maturity, may depress the value of its existing paper. The company has at least $11bn of debt outstanding that matures within the next 10 years, according to Bloomberg data.
Underwriters for the debt sale include JPMorgan, Barclays and Morgan Stanley. The banks declined to comment.
Getting the deal completed could prove tricky because investors have seen the value of their corporate bond holdings fall this summer as yields – which move in the opposite direction to prices – have gone up. Corporate bond investors are facing their first negative year of performance since 2008.
Some hedge fund managers have expressed scepticism that the deal will be attractive enough and say they have decided to give the issue a miss.
“JPMorgan has been calling around to ask at what level would you take $100m to $200m instead of $50m to $100m,” said the head of one multibillion credit fund.
“It’s really a bet on how it will perform in the after-market, but it is so big that I don’t see any chance it will appreciate.”
The fund manager noted that the deal comes at a time when the bond issuance calendar is unusually heavy, even by the standards of September, which is generally a busy time. Corporate treasurers were trying to raise funds before interest rates rose further, he added.
Moreover, many closed-end funds investing in bonds are nursing big losses, and trading at sizeable discounts to their net asset value. Mutual funds that buy bonds are worried about further outflows.
Verizon’s debt offering is likely to be spread across different currencies, with the first tranches being in US dollars. The dollar slice of Verizon’s financing is likely to exceed $20bn. That would make it the largest US offering in history, surpassing Apple’s $17bn sale of bonds in April.
The success of the US debt offering will be key in helping the company secure funds for two subsequent offers in euros and British pounds, traders and analysts say.
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