By Danielle Robinson
NEW YORK, Sept 9 (IFR) - Verizon Communications will
pay up to get at least USD20bn from the bond market in coming
days, by enticing investors with initial price thoughts of as
much as 135bp wider than where some of its existing bonds were
trading at the end of last month.
Details on the structure of the bond, expected to be the
biggest corporate deal of all time, emerged late on Monday
following days of speculation in the market regarding its size
It will consist of eight tranches, including two floating
rate notes with three- and five-year maturities and six fixed
rate tranches with maturities of three-, five-, seven-, 10-, 20-
Active bookrunners Barclays, BofA Merrill Lynch, JP Morgan
and Morgan Stanley are due to close books on Tuesday, with
pricing scheduled for Wednesday.
Initial price thoughts on the fixed rate tranches have been
heard at Treasuries plus 165bp on the three-year, T+190bp on the
five-year, T+215bp on the seven-year, T+225bp on the 10-year,
T+250bp on the 20-year and T+265bp on the 30-year.
Those levels were seen anywhere between 50bp-85bp over where
its secondaries were trading just before announcement of the
IPTs, but as much as 135bp wider than where those bonds were
trading before news of Verizon's USD130bn acquisition of
Vodafone's stake in Verizon Wireless hit the screens just over a
"This is clearly priced so you have no choice but to
participate," said one investor.
Verizon's existing 3.5% 2022 bonds, for example, were
trading at T+155/145bp, or G+170bp, and a price of 85 cents on
That suggests a new issue concession of around 50bp on the
new 2023s, after taking into account the low dollar price of the
That new issue concession is closer to 85bp, however, if
compared to the T+120bp, or G+140bp, spread on the 2022s on
August 29, before news hit the market it would be issuing
USD49bn worth of bonds to help pay for the acquisition.
Bankers away from the deal, however, said the offering was
being whispered at appropriate levels given the enormity of the
operation. The deal's size is expected to eclipse the previous
record bond issue in the investment-grade market, set by Apple
in April with its USD17bn transaction.
Offering an attractive concession should help lure
investors, and give the issuer more flexibility to tighten
pricing from these levels.
The new issue concession on the 30-year tranche's T+265bp
whispered talk is even more dramatic, at 85bp versus the T+180bp
trading level on its outstanding 2042s just prior to
announcement of the new deal.
In August, the 2042s traded as tight as 135bp, a whopping
130bp tighter than the whispered level.
Market participants expect the overall bond to be anywhere
from USD20bn to USD40bn in size, although many bankers believe
it will end up being closer to USD25bn in order to ensure that
unsatisfied demand will ensure reasonable support for the bonds
when they are free to trade.
One of the biggest fears among investors is that Verizon
will fill too much demand in order to get size, leaving a giant
transaction with little ability to perform in the after-market.
Poor performance of a deal of such size would be disastrous
for a sector that still has borrowers in need of raising at
least USD10bn more between now and the end of the year to pay
for maturities and debt-financed dividends and share buybacks.
Already spreads have gapped out in names like Comcast and
AT&T, as investors sell down their exposure to the sector to
make room for the jumbo Verizon deal.
According to IFR Markets data, telecom spreads have widened
out 17bp in the last 10 days, when others have traded 5bp
tighter to just 2bp wider.
After the dollar deal prices, Verizon is expected to move to
the euro and sterling markets, where it plans to raise whatever
is left to help pay for the USD61bn bridge it took out as the
debt-funded portion of the USD130bn acquisition price. The rest
of the bridge will be made up of three and five-year term loans.
Investor meetings are scheduled in London and Amsterdam on
Thursday and Edinburgh and Frankfurt on Friday.