You wait ages for the largest corporate bond deal of all time to come along and then two arrive within six months of each other. But the bond launched by US telecoms giant Verizon on September 11 looks like hanging on to the title for a while. The deal is the bond take-out of a $61 billion 364-day bridge loan that backs Verizons $130 billion acquisition of Vodafones 45% stake in its US wireless business.
When it was first mooted in early September market talk was that the underwriters, JPMorgan, Morgan Stanley, Bank of America Merrill Lynch and Barclays, would attempt an initial $20 billion sale. When the deal actually priced a matter of days later it had grown to an incredible $49 billion. This is larger than the previous three largest corporate bond deals of all time before it and larger than the GDP of roughly 90 countries.
The Verizon trade was launched into a market reeling from a turbulent summer in sharp contrast with the eerily calm quantitative easing-induced bond bull run that Apple exploited with its deal in April. Investors in Apple learned the hard way that interest rates have only one way to move in the current environment. However, there has been no shortage of appetite for telecom assets in 2013 Sprints September 4 $6.5 billion high-yield offering (the largest high-yield deal since Intelsats $7.1 billion trade in June 2008) attracted offers of $11 billion. But Verizon was swamped with an order book that reached $100 billion, enabling it to launch an eight-tranche deal, which incorporated $11 billion of 10-year paper at 225bp over treasuries and $15 billion of 30-year paper at 265bp over. And $4.25 billion of three-year paper paid 165bp over.
Despite the fact that the Verizon deal has been 10 years in the making, there was a sense of urgency to the companys plans not just because of the breath-taking size of the transaction, but also because of the uncertainty surrounding the Federal Reserves tapering intentions.
The $61 billion bank financing involves a $12 billion bridge to term loan tranche with the $49 billion balance bridged to the bond markets. It carries 25bp quarterly margin step-ups on any drawn amounts.
The challenge for triple-B rated Verizons bond underwriters was to get as much of the deal away as they could before any further market jitters over QE withdrawal set in. This they did by essentially paying up to get the whole deal done in one go. The new issue concession on offer more than did its job and has resulted in a deal of staggering size. The 10-year pays 50bp more than Verizons existing $1.75 billion of 2.45% bonds due November 2022. Given the current febrile interest rate environment it was important for the firm to pay up in order to lock in rates now.
Selling nearly $50 billion in one go was a spectacular way to do it.