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 interest rates.
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 notes.
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 name.
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 anything.”
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 sources.
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 program.
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 Treasuries.
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 follow suit.
“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.”