Xylem wows bond market with US$9bn order book

(ADDS details)

By Hillary Flynn

NEW YORK, Oct (HKSE: 3366-OL.HK - news) 3 (IFR) - Xylem (Frankfurt: A1JMBU - news) amassed a whopping US$9bn of orders Monday for a new US$900m two-part bond that the water technology company will use to help fund its acquisition of Sensus.

The massive order book came as a surprise given that the Rosh Hashanah holiday had kept some market players out - and that the deal had to compete with a big trade from Pepsi.

The overwhelming demand allowed Xylem (Baa2/BBB/BBB) to price a US$400m 30-year tranche at T+210bp, 40bp tight to initial price thoughts of T+250bp area.

It was a similar story on a US$500m 10-year, which priced at T+165bp, 35bp inside IPTs of T+200bp area.

"Everyone is looking for new names and new Triple Bs, particularly where you can get some industry diversification," one investor told IFR.

Proceeds will help New York-headquartered Xylem pay for the US$1.2bn acquisition of smart meter maker Sensus that was announced in August.

It was only the company's second visit to the US investment-grade bond market. It raised US$1.2bn from a 2011 bond issue, according to IFR data.

WEAK START

In all three issuers raised US$7.15bn on Monday, defying somewhat weaker conditions in the markets. The CDX IG27 was at 75.05-75.25bp, or 0.40bp wider on the day.

Beverage giant PepsiCo (Hanover: PEP.HA - news) (A1/A) was responsible for the bulk of that with a US$4.5bn six-part deal.

A second investor who bought into the Xylem trade said the deal offered a change of pace from the M&A offerings that have been up for sale of late.

"You don't see Xylem every day," he said. "Every M&A bond that's come to market has been pharma or software."

The deal also included a special mandatory redemption clause protecting bondholders if the acquisition falls apart.

Bondholders can redeem the bonds at 101 if the deal does not close by February 15 2017, or May 15 2017 in certain circumstances. (Reporting by Hillary Flynn; Editing by Paul Kilby and Marc Carnegie)