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September 11, 2013 1:24 pm
The US telecoms company, which was raising capital to finance its $130bn acquisition of the 45 per cent stake in Verizon Wireless it does not already own, stoked demand for the deal by selling the debt at generous levels compared with that of other similarly rated bonds.
The group sold its 10-year bond at a yield of 5.19 per cent, or about 57 basis points higher than its existing debt for that maturity, a substantial concession for bond investors.
Investors across the globe lined up to buy the bonds, with orders reaching $100bn. That was almost double the size of the order book for Apple’s $17bn offer in April, previously the largest on record. US pension funds and insurance companies, hedge funds, and Asian and Middle East investors, all bought the securities.
The huge appetite may signal an upswing for the corporate debt market, which has been under severe pressure since the Federal Reserve first hinted of a coming slowdown in its asset purchase programme in late May.
“This deal is working as a good litmus test on corporate bond market anxiety tied to the Federal Reserve’s next monetary policy moves,” said Adrian Miller, director of fixed-income strategy at GMP Securities.
“Judging by $100bn in orders for the bonds, it seems investors are finally getting over that anxiety,” he said.
For Wall Street, the record-breaking debt sale should also provide a fillip to banks’ underwriting businesses, which have already been generating higher revenues in recent quarters. The deal was marketed by 11 banks, led primarily by Barclays, Bank of America Merrill Lynch, JPMorgan and Morgan Stanley. The total fees on the Verizon deal, including the financing package, are expected to reach at least $500m for all the banks, according to bankers involved in the transaction.
“It’s a good day,” said one banker who worked on the issue. “It’s successful. I think people are thrilled that we can, as a group, provide the largest ever bridge financing and then term it out in less than 30 days.”
Investors said the sheer size of the deal meant that Verizon was less focused on the price than its desire to quickly lock in its funding for the acquisition of Verizon Wireless.
The company had initially planned to sell bonds also in euros and sterling, but the offerings had been “postponed for now”, the bankers said.
News of the bond sale has sent shockwaves through the corporate debt market in the past week. Debt sold by other highly rated telecoms companies declined in anticipation of the new supply, and large borrowers rushed to markets to raise funds ahead of Verizon.
The three-year fixed tranche was sold at 165bp over the benchmark Treasury yield, with the five-year bond at 190bp, and the 30-year at 265bp.
The three and five-year floating rate tranches were sold at 153bp and 175bp over the London Interbank Offered Rate, respectively.
Additional reporting by Tracy Alloway in New York
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