By Danielle Robinson
July 9 (IFR) - Bond investors gobbled up a new issue Tuesday
from software giant Oracle, which jumped into the market at a
time when many borrowers have been worried about a spike in
The company attracted a staggering US$13 billion in orders
for the US$3 billion deal, in a sign that investors are willing
to get back to business after an extended drought in issuance.
Oracle was one of five deals that launched in the
US primary market on Tuesday after the Treasury rates, on which
borrowing costs are based, ebbed away from a near two-year high.
The transaction will help Oracle fund a US$12 billion
addition to its stock buy-back program that was announced last
month. HSBC, Bank of America Merrill Lynch and Credit Suisse
were joint books.
But to make sure it drew the full attention of investors who
have insisted on better returns in the current climate, Oracle
put an eye-popping new issue concession on the table when it
first announced the deal.
The California-based company came out with initial price
thoughts of 110bp and 125bp over Treasuries, respectively, for
the US$1.5 billion of 5.5-year and US$1 billion of 10-year
That marked an extra 24bp-26bp over where its outstanding
secondary bonds were being quoted in the secondary market - an
extraordinary amount for such a highly-sought after, quality
Those levels attracted vast interest from investors, even
though the two tranches launched at T+95bp and T+110bp - smaller
new issue concessions of 15bp and 9bp.
Oracle is also offering a US$500 millions 5.5-year
floating-rate note at the equivalent price of the fixed-rate
tranche, but spread over Libor.
"Oracle came out with a very nice concession, at least at
the initial price thoughts stage," said one investor who asked
not to be named.
"While they took a lot of that away [by the time the deal
was to price], you don't often see a name like this offering
The company garnered US$1bn of orders for the five-year
floater, US$5.25bn for the five-year fixed-rate notes and
US$6.75bn for the 10-year fixed-rate notes, according to
The deal drew comparisons to the record US$17 billion bond
offering from Apple in late April - which was also used to put
cash back in the pockets of shareholders.
The Apple trade, the largest corporate bond in history,
priced at a weighted average cost of under 2.00% - a steal
compared to the massive corporate tax Apple would have had to
pay to repatriate offshore cash for funding its capital return
That tight pricing, however, meant Apple paid nothing in the
way of new issue concession. Apple's US$5.5 billion 10-year, for
example, priced at 2.4% at a time when Treasuries were 1.66% -
around 100bp tighter than the 2.64% level on Tuesday.
Although Apple is rated double-A plus to Oracle's single-A
plus, investors could not resist the appeal of picking up 51bp
of extra spread by buying Oracle's 5.5-year compared with
Apple's 1.00% 2018s at 44bp, and the 35bp extra that Oracle's
10-year offered versus Apple's 2.4% 2023s at 75bp over
With activist shareholders pressing tech companies with
large pools of offshore cash to spread the wealth around, and
rates expected to climb in the weeks and months ahead, the
success of the Oracle deal means other issuers are likely to
"The move in rates has caused a few issuers to look at the
environment and question whether or not they should wait to come
to the bond markets, or risk missing out on what is still an
accretive (corporate financing) opportunity," said Danish
Agboatwala, a credit analyst at Barclays.
"We have seen a number of large blue-chip technology
companies issue debt this year to pay extra dividends or buy
back shares, and we expect more infrequent issuers to come to
market as well, given what are still historically low rates."