Investors lining up to buy into Verizon’s record bond offering, which could reach $49 billion

September 10, 2013

Investors have submitted more than $90 billion in orders to buy new Verizon bonds in the largest corporate bond issue ever, which will help finance the $130 billion purchase of Vodafone Group’s 45 percent stake in Verizon Wireless, according to people familiar with the offering.

The final size of the oversubscribed offering Wednesday could be as much as $49 billion and will certainly top $40 billion, the people said, far outstripping Apple’s $17 billion bond sale earlier this year, the next-biggest U.S. offering. Based on the Tuesday closing prices for Treasury bonds, investors expect to receive 5.21 percent yields for new Verizon bonds maturing in 10 years and 6.54 percent for those maturing in 30 years. Shorter-term bonds will carry lower rates.

“I think it says something about the huge amount of cash awash looking for a home to earn some decent return,” said one portfolio manager, who spoke on the condition of anonymity to protect business relationships. “These yields are higher than bonds of comparable quality by a good margin. So it’s a nice opportunity and a quality name people are comfortable with.”

“Early indications are that it will be hugely successful,” said another person involved in negotiating the deal.

Fitch on Tuesday reaffirmed its rating of A-minus for the new Verizon bonds and said the outlook for the company was stable. Standard & Poor’s issued a BBB-plus rating on the new bonds. Both agencies had lowered Verizon’s rating one notch last week after the Vodafone deal was announced.


The purchase would give New York-based Verizon full control over Verizon Wireless, which is the nation’s biggest wireless carrier with about 100 million subscribers.

Verizon and British-based Vodafone finally moved forward with the long-discussed deal, in part because of concern that interest rates might soon rise as the economy recovers and the Federal Reserve scales back its own bond purchases. The Fed has been buying corporate and Treasury bonds to keep rates low and aid the sluggish recovery.

The expected Verizon bond rates fall within the company’s forecasts, according to people familiar with the deal.

Verizon will pay Vodafone nearly half the purchase price in cash and the rest primarily in stock. To cover the cash portion, Verizon has entered into a $61 billion bridge facility — a short-term loan used until a borrower lines up other financing.

Verizon will seek to pay off as much of the bridge loans as possible. It already has obtained $12 billion in long-term commercial bank loans. Under the terms of the acquisition, it needs — and is seeking — Vodafone’s agreement to immediately pay off an additional $8 billion of bridge loans. That means the final size of the offering is expected to fall within a range of $41 billion to $49 billion, according to people familiar with the negotiations.

The offering is being managed by Barclays, Bank of America, JPMorgan Chase and Morgan Stanley, Verizon said in regulatory filings.

Verizon will sell securities with different maturity dates, and the interest rates will rise as those periods grow longer. The portfolio manager said interest rates on the new Verizon bonds are expected to come in at 1.65 percentage points over three-year Treasury bonds, 1.90 percentage points over five year Treasuries, 2.15 points over the seven-year Treasuries, 2.25 points over 10-year Treasuries, 2.5 points over 20-year Treasuries and 2.65 points over 30-year Treasuries.

Steven Mufson covers energy and other financial news.
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September 10, 2013

Investors have submitted more than $90 billion in orders to buy new Verizon bonds in the largest corporate bond issue ever, which will help finance the $130 billion purchase of Vodafone Group’s 45 percent stake in Verizon Wireless, according to people familiar with the offering.

The final size of the oversubscribed offering Wednesday could be as much as $49 billion and will certainly top $40 billion, the people said, far outstripping Apple’s $17 billion bond sale earlier this year, the next-biggest U.S. offering. Based on the Tuesday closing prices for Treasury bonds, investors expect to receive 5.21 percent yields for new Verizon bonds maturing in 10 years and 6.54 percent for those maturing in 30 years. Shorter-term bonds will carry lower rates.

“I think it says something about the huge amount of cash awash looking for a home to earn some decent return,” said one portfolio manager, who spoke on the condition of anonymity to protect business relationships. “These yields are higher than bonds of comparable quality by a good margin. So it’s a nice opportunity and a quality name people are comfortable with.”

“Early indications are that it will be hugely successful,” said another person involved in negotiating the deal.

Fitch on Tuesday reaffirmed its rating of A-minus for the new Verizon bonds and said the outlook for the company was stable. Standard & Poor’s issued a BBB-plus rating on the new bonds. Both agencies had lowered Verizon’s rating one notch last week after the Vodafone deal was announced.


The purchase would give New York-based Verizon full control over Verizon Wireless, which is the nation’s biggest wireless carrier with about 100 million subscribers.

Verizon and British-based Vodafone finally moved forward with the long-discussed deal, in part because of concern that interest rates might soon rise as the economy recovers and the Federal Reserve scales back its own bond purchases. The Fed has been buying corporate and Treasury bonds to keep rates low and aid the sluggish recovery.

The expected Verizon bond rates fall within the company’s forecasts, according to people familiar with the deal.

Verizon will pay Vodafone nearly half the purchase price in cash and the rest primarily in stock. To cover the cash portion, Verizon has entered into a $61 billion bridge facility — a short-term loan used until a borrower lines up other financing.

Verizon will seek to pay off as much of the bridge loans as possible. It already has obtained $12 billion in long-term commercial bank loans. Under the terms of the acquisition, it needs — and is seeking — Vodafone’s agreement to immediately pay off an additional $8 billion of bridge loans. That means the final size of the offering is expected to fall within a range of $41 billion to $49 billion, according to people familiar with the negotiations.

The offering is being managed by Barclays, Bank of America, JPMorgan Chase and Morgan Stanley, Verizon said in regulatory filings.

Verizon will sell securities with different maturity dates, and the interest rates will rise as those periods grow longer. The portfolio manager said interest rates on the new Verizon bonds are expected to come in at 1.65 percentage points over three-year Treasury bonds, 1.90 percentage points over five year Treasuries, 2.15 points over the seven-year Treasuries, 2.25 points over 10-year Treasuries, 2.5 points over 20-year Treasuries and 2.65 points over 30-year Treasuries.

Steven Mufson covers energy and other financial news.
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