NEW YORK, May 1 (IFR) - More than a quarter of the secondary trading in the US corporate bond market Wednesday was in Apple’s newly-minted $17 billion issues, as investors started betting that the iPhone maker will end up trading tighter than higher-rated Microsoft.
By the end of the day, all six tranches of three and five-year fixed and floating-rate notes, 10-year fixed and 30-year fixed-rate notes were trading several basis points tighter than their new issue levels. That made the deal not only the world’s biggest corporate deal ever, but also one of its most successful.
“We obviously had a terrific book, but what is important in deals of such size is to not lose sight of what is considered fair value in the market place, because at the end of the day the secondary market will tell you how much you left on the table,” said a syndicate manager at one of the big US banks.
“In this deal you can see it was priced and sized bang on the nose.”
The deal set a series of records. Not only was it the largest ever, but its $50.25 billion order book was the biggest ever recorded for any offering.
The three-year floating-rate tranche priced at the lowest level ever recorded for a corporate, at Libor plus 5 basis points, and its $5.5 billion 10-year was the largest single tranche of financing by a corporate.
A bond deal is considered to have been appropriately priced when it trades only a few basis points tighter after pricing. Any more than that suggests the offering was too cheap.
Although the spreads on Apple’s bonds are tight, investors view the technology giant as a good buy at a time when central banks are flooding the markets with liquidity.
“Getting a new issue concession of 5-10 basis points is good because I can see this trading through Microsoft at some point, although not in the near term,” said Matt Duch, senior portfolio manager at Calvert Investments.
Not everyone agreed. Some said investors are ignoring the fact that leverage is rising as companies return cash to shareholders and embark on mergers and acquisitions.
“In addition to Apple, there are dozens of companies out there are looking opportunistically to tap the bond market to return money to their shareholders,” said Michael Collins, a senior portfolio manager at Prudential.
“This re-leveraging of the corporate industrial complex is disconcerting and needs to be closely monitored.”
The order book was broken into $12 billion for the 30-year, $16.5 billion for the 10-year fixed, $10.75 billion for the five-year fixed, $3.5 billion for the five-year floater, $5 billion for the three-year fixed and $2.5 billion for the three-year floater.
The deal attracted 2,000 orders from 900 individual investors, and 90 percent of it was allocated to investors in the US, according to bankers.
Apple opted to issue only in dollars as it will use that currency for its planned $100 billion capital program for shareholders. The company told investors on a Monday call that the deal is the only one it is planning to bring this year, bankers said, dashing expectations it would add euros or sterling.
The $1 billion three-year floater, priced at three-month Libor plus 5 basis points, was last trading at just 1.5 basis points over Libor at the mid-point between the bid and offer price.
The $1.5 billion three-year fixed-rate note was quoted at 17/16 basis points after pricing at Treasuries plus 20 basis points.
The $2 billion five-year floater was quoted at Libor plus 18/17 basis points from Libor plus 25 basis points, and the $4 billion five-year fixed-rate tranche was trading at Treasuries plus 35/34 basis points after pricing at Treasuries plus 40 basis points.
The $5.5 billion 10-year was quoted at 75/74 basis points from a new issue spread of Treasuries plus 75 basis points, and the $3 billion 30-year was at 96/95 basis points from 100 basis points.
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