Investors flood Juniper bond with orders
The company, which last week announced a three-year US$3bn capital return to shareholders under pressure from Elliott Management Corp, came to market with a new US$350m 4.5% 10-year bond offering.
Normally such a large capital return program for a company the size of Juniper would be of concernn to bond investors.
Solving its problems with Elliott and getting a one-year standstill agreement from the hedge fund, however, was crucial to the success of the deal, led by Barclays and Goldman Sachs.
"Bond investors hate not having clarity, so if a borrower gives them that, then they will be fine, because then they can work out valuation," said one market participant.
Juniper (Baa2/BBB) announced the no-grow US$350m deal in the low 200s, a level that garnered orders just shy of US$3bn.
That compared with similarly rated triple-B tech companies trading in the high 100s, and Cisco's US$1bn 3.625% March 2024s - issued on Monday as part of a US$8bn trade - trading at 88bp.
Although Cisco is higher rated at A1/AA-, investors and analysts found it hard to ignore the difference in spread.
"Cisco is clearly in a superior financial position relative to Juniper, as it is 10 times the size of Juniper and holds far more cash relative to its debt load," Morningstar said in an analyst note.
"However, we believe the difference in spread between the two firms' bonds should only be about 50 basis points," it said.
"We pegged fair value on the new Cisco 10-year bonds at +75 basis points, which would imply a fair value on the Juniper issue of +125 basis points."
At 187.5bp Juniper came about 12.5bp inside of the G+200bp level on its outstanding 4.6% March 2021s.
Keeping the deal small also helped elevate its already considerable scarcity value as a bond issuer.
The US$350m will complement the cash on hand Juniper is setting aside for immediate capital return requirements, a source close to the issuer said.
The capital return program includes a US$2bn share buyback, US$1.2bn of which has been accelerated.