Verizon steals the limelight with record US$49bn bond

By Shankar Ramakrishnan

NEW YORK, Sept 11 (IFR) - Verizon Communications, as expected, stole the limelight in the US high-grade market on Wednesday by pricing a record US$49bn corporate bond.

Investors clamoured to get a slice of the deal as the telecoms operator offered generous yields to lock in permanent financing for its US$130bn buyout of Verizon Wireless.

Anxious to complete the entire bond portion of its acquisition financing before a crucial Federal Open Market Committee meeting next week, Verizon (NYSE: VZ - news) decided to scrap US$5bn-US$10bn of issuance in euros and sterling, initially planned for next week and do the entire amount in dollars.

At US$49bn, the eight-part deal is bigger than the three previous record-sized deals combined: Apple (NasdaqGS: AAPL - news) 's US$17bn deal in April, AbbVie (NYSE: ABBV - news) 's US$14.7bn last November (Xetra: A0Z24E - news) and Roche Holdings' US$13.5bn transaction in 2009. It is also larger than the GDP of some 90 countries.

In addition, Verizon also now holds the record for the largest three-year, five-year, seven-year, 10-year, 20-year and 30-year fixed rate tranches, according to Thomson Reuters/SDC data.

Sources with knowledge of the deal said Verizon and its key underwriters, Bank of America Merrill Lynch, Barclays (LSE: BARC.L - news) , JP Morgan (Other OTC: JPYYL - news) and Morgan Stanley (Xetra: 885836 - news) , were shocked at the size of the order book that emerged by Tuesday afternoon.

The total bond underwriting fees Verizon paid were also substantial, estimated at between US$240m-US$249m by Thomson Reuters/Freeman Consulting.

Some of the fee bonanza was also shared with several so-called passive bookrunners - Citi, Credit Suisse (NYSE: CS - news) , Mizuho, Royal Bank of Canada (Toronto: RY-PC.TO - news) , Royal Bank of Scotland (LSE: RBS.L - news) and Wells Fargo (Other OTC: WFCNO - news) .

The US$49bn, along with about US$12bn of term loans, will completely refinance the US$61bn one-year bridge loan put in place last week to cover the debt portion of Verizon's acquisition of Vodafone (LSE: VOD.L - news) 's 45% holding in Verizon Wireless.

That the deal was priced cheaply was made obvious after the longer-dated tranches snapped in as much as 45bp as soon as they were free to trade. The three-year fixed rate tranche was trading 65bp tighter than its launch spread.

Yet investors considered the deal to have been appropriately priced, given its size and the bigger risk Verizon faced if it didn't get all of its bonds issued at once.

Sneaking through on such a big volume day was also Colombia's sovereign-owned oil and gas company Ecopetrol which priced a US$2.5bn three-part that attracted an order book of over US$12bn.

VERIZON COMMUNICATIONS

Verizon Communications (VZ), Baa1/BBB+/A- (all stable), announced a US dollar benchmark SEC-registered senior unsecured multi-tranche offering. The maturities included a 3-year fixed and floating (Sep 15, 2016), 5-year fixed and floating (Sep 14, 2018), 7-year fixed (Sep 15, 2020), 10-year fixed (Sep 15, 2023), 20-year fixed (Sep 15, 2033) and 30-year fixed (Sep 15, 2043).

The active bookrunners are Barclays, BofA Merrill Lynch, JP Morgan, Morgan Stanley, with the passive bookrunners Citigroup (NYSE: C - news) , Credit Suisse, Mizuho, RBC, RBS and Wells Fargo. Settlement: T+5.

IPT:

3-year fixed T+165bp, 5-year fixed T+190bp, 7-year fixed T+215bp, 10-year fixed T+225bp, 20-year T+250bp, 30-year T+265bp

PRICE GUIDANCE:

3-year fixed T+165bp area, 3-year FRN 3mL+equivalent, 5-year fixed T+190bp area, 5-year FRN 3mL+equivalent, 7-year fixed T+215bp area, 10-year fixed T+225bp area, 20-year T+250bp area, 30-year T+265bp area. Area is +/- 5bp

LAUNCH: US$49bn 8-tranche senior notes

- US$4.25bn 3yr fixed at T+165bp

- US$2.25bn 3yr FRN 3mL+153bp

- US$4.75bn 5yr fixed T+190bp

- US$1.75bn 5yr FRN 3mL+175bp

- US$4bn 7yr fixed T+215bp

- US$11bn 10yr fixed T+225bp

- US$6.0bn 20yr T+250bp

- US$15bn 30yr T+265bp

PRICED: US$49bn 8-tranche senior notes

- US$4.25bn. Cpn 2.50%. Due 9/15/16. Ip 99.923. Yld 2.527%. T+165bp. MWC T+30bp

- US$2.25bn. Cpn 3mL+153bp. Due 9/15/16. Ip par. Yld 3mL+153bp

- US$4.75bn. Cpn 3.65%. Due 9/14/18. Ip 99.996. Yld 3.651%. T+190bp. MWC T+35bp

- US$1.75bn. Cpn 3mL+175bp. Due 9/14/18. Ip par. Yld 3mL+175bp

- US$4bn. Cpn 4.50%. Due 9/15/20. Ip 99.870. Yld 4.522%. T+215bp. MWC T+35bp

- US$11bn. Cpn 5.15%. Due 9/15/23. Ip 99.676. Yld 5.192%. T+225bp. MWC T+40bp

- US$6bn. Cpn 6.40% Due 9/15/33. Ip 99.900 Yld 6.409%. T+250bp. MWC T+40bp

- US$15bn. Cpn 6.55%. Due 9/15/43. Ip 99.883. Yld 6.559%.T+265bp. MWC T+45bp.

BOOK SIZE: US$101bn.

3-year fixed: US$9.25bn; 3-year floater: US$6bn, 5-year floater: US$5bn, 5-year fixed: US$12bn; 7-year fixed: US$9bn; 10-year: US$21.5bn; 20-year: US$11.25bn; 30-year: US$27bn

COMPS:

VZ 2.0% November 2016 at T+105bp, G+96bp US$100.3

VZ 1.1% November 2017 at T+90bp, G+125bp

VZ 2.45% November 2022 at T+157bp, G+172bp

VZ 3.85% November 2042 at T+175bp, G+181bp

T 0.9% February 2016 A3/A- at T+47bp, G+68bp

T 1.4% December 2017 A3/A- at T+74bp, G+106bp

T 2.625% December 2022 A3/A- at T+150bp, G+163bp

T 4.3% December 2042 A3/A- at T+183bp, G+189bp

ECOPETROL (NYSE: EC - news)

Ecopetrol SA, Baa2/BBB/BBB-, announced a US DOLLAR benchmark SEC-registered two-part deal that consisted of 5-year and 10-year senior notes. The notes contain a make-whole call and a 101 change of control put and withholding tax redemption call at par. The active bookrunners are Bank of America Merrill Lynch and Morgan Stanley.

UOP: general corporate purposes, including capex expeditures.

Settlement: T+5.

Biz: Ecopetrol is Colombia's Sovereign-owned oil & gas company.

IPT: 5-year T+300bp area; 10-year T+325bp area; 30-year T+375bp area

PRICE GUIDANCE: 5-year T+270bp area; 10-year T+315bp area; 30-year T+360bp area

LAUNCH: US$2.5bn total

- US$350m 5-year at T+260bp

- US$1.3bn 10-year at T+305bp

- US$850m 30-year at T+360bp

PRICED:

- US$350m 5-year at T+260bp (4.25% coupon, 99.559, 4.349% yield)

- US$1.3bn 10-year at T+305bp (5.875% coupon, 99.033, 6.005% yield)

- US$850m 30-year at T+350bp (7.375% coupon, 99.474, 7.419% yield)

BOOK SIZE: Over US$12bn (Reporting by Shankar Ramakrishnan; Editing by Varghese Joseph)