Apple leads US$11.075bn high-grade bond sales

(Updates supply figures, data)

By Hillary Flynn

NEW YORK, March 17 (IFR) - Computer giant Apple (LSE: 0R2V.L - news) led a rush of US$11.075bn of new high-grade bond supply on Thursday after the Fed prompted a sharp rally in credit spreads by signaling fewer rate hikes in 2016.

Ten companies crammed into the market, with some - Apple and AIG - back selling debt after printing new deals only last month, taking full advantage of welcoming conditions in a primary market that has sprung back to life.

"The market is that much better after being ugly (at the beginning of the year)," one syndicate banker told IFR. "If the window is there, you take it."

The CDX IG 25 index rallied nearly 4bp on Wednesday after the Fed announcement and was another 2bp tighter on Thursday at 83.75bp, paving the way for a full slate of high-grade offerings.

Apple, rated Aa1/AA+, was set to price the biggest deal of the day at US$3.5bn, while AIG, Lloyds Banking Group (Other OTC: LLOBF - news) were each due to raise US$1.5bn.

Apple is increasing the size of three outstanding US dollar bonds that it sold in February as part of a US$12bn nine-part deal.

It (Other OTC: ITGL - news) is tapping its US$2.25bn 2.25% 2021 bonds, US$2bn 3.25% 2026s and US$2.5bn 4.65% 2046s - all of which have rallied 50bp-60bp since pricing as the risk-on rally has gained momentum.

That tightening, along with a drop in underlying Treasury yields, will help Apple finance its capital return program to shareholders at very attractive borrowing costs.

The information technology sector was the top spending group in terms of dollar-value buybacks in the fourth-quarter as companies including Microsoft (NasdaqGS: MSFT - news) , Oracle (Hanover: ORC.HA - news) and Visa (Xetra: A0NC7B - news) spent a total of US$33.2bn, according to research firm FactSet.

Apple was the largest of all, repurchasing US$6bn worth of shares - half of the purchases coming from its accelerated share repurchase program and half being bought in the open market.

SHINY APPLE

As investors poured in US$9.6bn of orders into the Apple (Swiss: AAPL.SW - news) trade before midday, lead managers Bank of America Merrill Lynch, Goldman Sachs (NYSE: GS-PB - news) , JP Morgan and Deutsche Bank (LSE: 0H7D.L - news) were able to pull in pricing through the bookbuilding stage by 10bp-15bp across all tranches.

Final terms were set at T+55bp on the US$750m tap of the 2021s, T+100bp on the US$1.25bn tap of the 2026s, and T+155bp on the US$1.5bn tap 2046s - suggesting new issue concessions in the single digits.

Those NICs are much lower than what the company offered on its deal last month, which could make some on the buyside less inclined to participate.

"The IPT of the add-ons implies much smaller NICs off of tighter spreads on the existing bonds and are thus a lot less attractive [for investors]," CreditSights analysts said.

They advised investors to stay away from the trade.

American International Group (NYSE: AIG - news) also returned to the bond market after raising US$1.5bn from a five-year transaction in February.

The rush of supply was driven by the tightening in spreads and drop in underlying yields - but some said benign conditions should last for some time.

"There is a misperception that rates are just temporarily low, so any shot down in rates seems to light a fire under someone that this is the chance to issue," Robert Tripp, chief investment strategist at Prudential Fixed Income, told IFR.

"With (Other OTC: WWTH - news) the Fed scaling back their rate hikes and the incredibly low rates in the G4 markets, it would be very hard for Treasuries to remain sustainably above 2%." (Reporting by John Balassi and Mike Gambale; Additional reporting by Hillary Flynn; Writing by Natalie Harrison; Editing by Marc Carnegie and Shankar Ramakrishnan)