UPDATE 2-Cisco launches US$8bn bond deal

Mon Feb 24, 2014 2:15pm EST

By Danielle Robinson

NEW YORK, Feb 24 (IFR) - Cisco Systems has launched an US$8 billion seven-tranche jumbo bond issue after being deluged with more than US$21 billion of orders for its first debt transaction in three years.

The deal, led by Barclays, Bank of America Merrill Lynch, Deutsche Bank and JP Morgan, is the biggest investment-grade bond of the year so far, and the second largest offering from a technology company, behind Apple's US$17bn deal in 2013.

Investors jumped at the chance to buy the bond, whose proceeds will take out US$3.75bn of Cisco notes coming due this year.

Cisco, which has suffered lacklustre earnings in recent quarters, was also generous with spread, especially for the short-dated maturities.

"This deal looked particularly attractive at the front end," said one investor who took part in the deal. "I'd say you are getting about 5-10bp of new issue concession for the three and five-year tranches, so I think there will be a good bid on the break."

The seven-tranche issue includes US$850 million of 18-month floating rate notes, launched at three-month Libor plus 5bp; US$2.4 billion of three-year fixed rate notes at Treasuries plus 40bp; US$1 billion of three-year floaters at three-month Libor plus 28bp; US$1.75 billion of five-year fixed rate securities at Treasuries plus 60bp; US$500 million of five-year floaters at three-month plus 50bp; US$500 million of seven-year notes at Treasuries plus 75bp and US$1 billion of 10-year securities at Treasuries plus 90bp.

That compares with initial price thoughts of Libor plus 5-7bp on the 18-month FRN, T+45bp area on the three-year fixed, 3mL+33bp area on the three-year FRN, T+70bp area on the five-year fixed, 3mL+60bp area on the five-year FRN, T+95bp area on the seven-year fixed and T+105bp area on the 10-year fixed.

Cisco, rated A1/AA-, is also expected to use the proceeds to beef up cash levels as it continues its aggressive program of returning capital to shareholders this year, including the repurchase of common stock and the payment of cash dividends.

Citigroup, HSBC, and Wells Fargo are passives on the deal.

Cisco spent US$4bn in its second fiscal quarter ending January 25 to buy back shares.