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
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
"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.