* Pricing too good to turn down, 45bp spread tightening
* 3000 orders worth over $100 billion from 1,200 investors
* $240-249m estimated fee payday for underwriters
By Danielle Robinson
NEW YORK/LONDON, Sept 11 (IFR) - Verizon Communications
priced a record $49 billion corporate bond on Wednesday and
investors clamoured to get a slice of the deal as the telecoms
operator offered generous yields to lock in permanent financing
for its $130 billion buyout of Verizon Wireless.
Anxious to complete the entire bond portion of its
acquisition financing before a crucial Federal Open Market
Committee meeting next week, Verizon decided to scrap $5
bilion-$10 billion of issuance in euros and sterling initially
planned for next week do the entire amount in dollars.
At $49 billion, the eight-part deal is bigger than the three
previous record-sized deals combined: Apple's $17 billion deal
in April, AbbVie's US14.7 billion last November and Roche
Holdings' $13.5 billion transaction in 2009. It is also larger
than the GDP of some 90 countries.
In addition, Verizon also now holds the record for the
largest three-year, five-year, seven-year, 10-year, 20-year and
30-year fixed rate tranches, according to Thomson Reuters/SDC
Sources with knowledge of the deal said Verizon and its key
underwriters, Bank of America Merrill Lynch, Barclays, JP Morgan
and Morgan Stanley, were shocked at the size of the order book
that emerged by Tuesday afternoon.
The total bond underwriting fees Verizon paid were also
substantial, estimated at between $240-249 million by Thomson
Some of the fee bonanza was also shared with several
so-called passsive bookrunners, Citi, Credit Suisse, Mizuho,
Royal Bank of Canada, Royal Bank of Scotland and Wells Fargo.
The $49 billion, along with about $12 billion of term loans,
will completely refinance the $61 billion one-year bridge loan
put in place last week to cover the debt portion of Verizon
acquisition of Vodafone's 45% holding in Verizon Wireless.
Acquisition financing is often structured where banks will
provide the acquirer with short-term loans to provide a bridge
between making a bid on an asset and then putting permanent
financing in place in the form of bonds and term loans.
AS QUICKLY AS POSSIBLE
"Verizon had a preference to take out as much as they could,
as quickly as they could, in maturities that were as long as
possible," said one source involved in the deal.
"And once they signaled to the maket that they were out for
size and were not going to play the usual game of pulling in the
spread as orders came in the book, investors were willing to
come into the deal in size."
More than 3000 orders worth more than $100 billion poured in
from more than 1,200 investors as a result of new issue
concessions greater than 50bp on the fixed rate tranches. This
was in addition to the 50bp spread widening seen in the last
fortnight on outstanding Verizon bonds, in anticipation of the
Another source close to the deal said there was at least one
order that exceeded $5 billion. Another source, not involved in
the deal, said there was one order of $7 billion from one
"The investor base viewed this as an opportunity to get
exposure to a name with the cash flow and debt reduction
trajectory to return to a single A rating in a few years," the
Verizon is rated Baa1/BBB+/A- by Moody's, S&P and Fitch.
The bargain basement pricing was made obvious when the
longer-dated tranches snapped in as much as 45bp as soon as they
were free to trade. The three-year fixed rate tranche was
trading 65bp tighter than its launch spread.
"This deal has done very well but it was no secret the deal
was priced very cheaply in order to accommodate the massive
amount of size the company wanted to print," said Frank Reda,
head of trading at Taplin, Canida and Habacht.
Tightening of 20bp is rarely seen in the investment grade
market, let alone more than 40bp.
Yet investors considered the deal to have been appropriately
priced, given its size, and the bigger risk Verizon faced if it
didn't get all of its bond issued at once.
"This amount of tightening is very uncommon but this amount
of debt issuance is also very uncommon," said Reda.
"It was better for the company to pay a little extra and
make sure that they complete all the funding they needed rather
than risk the deal going poorly and them having to come back to
market at a later date."
Verizon was left in no doubt by the bond underwriters that
its spreads could widen out 40-50bp on the news of a $20
billion-plus transaction, as well as the fact that, given the
volatile markets of late, that it might have to offer a further
50bp as new issue concession.
It was not just the pricing that made the deal too good to
refuse. Investors who benchmark themselves to bond indices were
forced to take part simply because of the impact the size of the
deal will have on the make up of indexes they measure their
"With an offering of this magnitude, some portfolio managers
who measure their performance against a benchmark might consider
themselves as taking on a certain degree of basis risk by not
participating in this deal," said portfolio manager Bonnie Baha,
who heads global developed credit at DoubleLine.
Its average coupon on the tranches was 3.59%, and with the
10, 20 and 30-year coupons ranging from 5.15% to 6.55%, the deal
even attracted junk bond investors.
"Many people looked at the 5.2% expected coupon on the
10-year bond and realized that this is a blue-chip borrower
that's offering more than some double-B names," said Mike
Collins senior portfolio investment manager at Prudential.