Vodafone pulls 30-year bond amid covenant pushback

(Adds investor quotes, details)

By Davide Scigliuzzo

NEW YORK, Nov 23 (IFR) - Telco Vodafone pulled a 30-year US dollar bond offering from the market on Monday, just hours after announcing initial price thoughts for the trade, one of the lead managers told IFR.

Investors said the deal had been struggling to gain traction mostly because of a lack of sufficient protection against a possible takeover or a downgrade.

The company, rated Baa1/BBB+/BBB+, was expected to raise US$1.5bn to US$2bn though the bond sale, which was being marketed at a spread of 250bp area over US Treasuries.

"I think it just needs better covenants," said one portfolio manager, who argued poor liquidity and tight pricing also contributed to the lack of demand from the buyside.

A key concern for investors was the absence of a change of control option, which would have forced the company to redeem the notes in the event of a takeover or a merger.

"The sticking point was change of control," said a second portfolio manager. "It (Other OTC: ITGL - news) 's also not the best kind of deal to bring in a holiday-shortened week."

Vodafone and double B rated Liberty Global (NasdaqGS: LBTYA - news) abandoned talks to swap business assets in September, but bankers haven't ruled out the possibility of a merger between the two companies.

The company had offered to add step-ups to its coupon structure in the event of a downgrade below investment-grade from Moody's or Standard & Poor's, according to a third investor.

The coupon on the deal would have increased by 25bp per notch of downgrade per agency, with a 200bp cap.

Vodafone is the second issuer to pull a multi-billion offering from the US corporate bond market in less than a week. Veritas failed to sell high-yield bonds backing its leveraged buyout from Carlyle last week amid pushback from investors.

Earlier this month, Chilean financial company Tanner Servicios Financieros, rated BBB-/BBB-, postponed a US$300m bond sale due to adverse market conditions.

In October, insurance company Allied World, rated Baa1/BBB+/BBB+, also dropped the 30-year portion of its US dollar bond offering. (Reporting by Natalie Harrison; Writing by Davide Scigliuzzo; Editing by Jack Doran and Paul Kilby)