Verizon in largest bond deal in history


Fri, Sep 13, 2013 - Page 15

Verizon Communications Inc raised US$49 billion on Wednesday in the largest corporate bond deal ever.

The sale dwarfs the previous record — Apple Inc’s sale of US$17 billion in bonds in April — and proceeds from the sale on Wednesday will help Verizon buy the rest of its US wireless business from partner Vodafone Group PLC.

The record sale shows that, despite the recent rise in yields for government bonds, investors are still looking to invest in debt — particularly if it involves quality companies such as Verizon.

Verizon’s plans to pay US$130 billion for Vodafone’s 45 percent stake in Verizon Wireless and it is expected to rank as the second-largest ever deal when completed. Along with the money from its bond sale, Verizon will use cash and stock to pay for the buyout.

Verizon’s bond sale was huge in every way: The offering is nearly triple Apple’s sale and the debt will become due at eight different times, from three to 30 years.

Demand for the debt was high, with investors placing more than US$100 billion in orders for Verizon’s offering.

Despite the demand, Verizon did have to pay a hefty price to investors. It priced US$11 billion of its 10-year notes at a yield of 5.19 percent, according to a deal document. That is well above the 4.51 percent yield for similar bonds Verizon had issued previously. By comparison, investors are buying 10-year Apple bonds at a yield of 3.86 percent, a reflection of that company’s near-pristine credit rating and US$147 billion in cash.

Verizon’s massive bond sale comes at a critical time for bond investors. In June, US Federal Reserve Chairman Ben Bernanke said the central bank was considering pulling back on its bond-buying program, which has kept interest rates at historic lows in an effort to stimulate the economy.

As a result, the yield of the US 10-year Treasury note, the benchmark for all bonds public and private, is at 2.96 percent, almost double the 1.63 percent yield from early May.

There was talk among investors that the recent rise in interest rates might have pushed Verizon to do its deal with Vodafone, in order to lock in the rates before the Fed starts to phase out its bond buying program.