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 and maturities.
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- and 30-years.
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 week ago.
“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 the dollar.
That suggests a new issue concession of around 50bp on the new 2023s, after taking into account the low dollar price of the 2022s.
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.