Verizon offers higher yields in $49bn bond sale

VERIZON was on course yesterday to sell bonds worth $49bn, the world’s largest corporate debt sale, as the US telecoms company raises capital to finance the $130bn acquisition of a 45% stake in Verizon Wireless.

Verizon is offering a combination of fixed and floating-rate debt spread across six different maturities from three to 30 years. The sale surpasses Apple’s $17bn bond offer in April, previously the largest on record.

The sale attracted a large pool of investors, including US pension funds and insurance companies, people close to the deal said.

Hedge funds, as well as Asian and Middle East investors, also purchased the securities, they said.

But to entice investors, who have been nervous after a sell-off in corporate debt in the past few months, Verizon had to offer higher yields compared with its existing bonds.

This so-called concession on price totalled about 225 basis points for Verizon’s $11bn worth of new 10-year bonds. That compares with average new-issue concessions of about 15-20 basis points for similarly rated 10-year maturities.

Ashish Shah, head of global credit at AllianceBernstein, said the initial price guidance on Verizon’s bonds looked attractive for many bond investors, with the 10-year bonds yielding more than 5% as the company and its underwriters have sought to find buyers for the deal.

“The deal will perform once it prices, given its large concession,” he said. “A lot of people have sector limitations and need to sell existing telecoms debt to make room for these (Verizon) bonds.”

The three-year fixed tranche priced at 165 basis points over the benchmark Treasury yield, with the five-year bond at 190 basis points and the 30-year at 265 basis points.

The three and five-year floating rate tranches were sold at 153 basis points and 175 basis points over the London interbank offered rate, respectively.

Verizon started to pitch the bonds to investors on Monday in New York in a road show. Bloomberg reported yesterday that a meeting in Europe, where the firm was to sell up to $10bn worth of bonds in euros and sterling, was postponed.

The sale was managed by Barclays, Bank of America Merrill Lynch, JP Morgan and Morgan Stanley.

The deal is seen as important in the context of a wave of “jumbo” global debt issuance. Telecoms companies have sold about $155bn of bonds in the US so far this year, not including yesterday’s offer.

It has brought back memories of a “golden age” of jumbo bond deals by telecoms companies, when debt offerings by the likes of France Telecom, BT and WorldCom routinely topped $10bn.

However, it also comes at a time when the market for corporate debt is sharply negative for the year and uncertainty hangs over the near-term direction of yields, which move in the opposite direction to prices.

Corporate bond investors are facing their first year of negative performance since 2008.

News of the bond sale weighed on Verizon and other telecoms bonds in secondary markets.