Verizon prices record-breaking deal; one Verizon tranche tightens nearly 70 bps in secondary

By Cristal Cody and Aleesia Forni

Virginia Beach, Va., Sept. 11 - The high-grade bond market saw a record-breaking session on Wednesday. Verizon Communications Inc. priced the largest corporate bond deal in history.

The company came to market with a $49 billion offering in eight parts, shattering the previous $17 billion record held by Apple Inc.

Apple priced its six-part deal in April.

Verizon's deal priced on top of talk and included $2.25 billion of floating-rate notes due 2016 sold at par to yield Libor plus 153 basis points and $4.25 billion of 2.5% notes due 2016 with a spread of Treasuries plus 165 bps.

A $1.75 billion issue of floaters due 2018 priced at par to yield Libor plus 175 bps, and a $4.75 billion issue of 3.65% notes due 2018 priced with a spread of 190 bps over Treasuries.

The company priced $4 billion of 4.5% seven-year notes at Treasuries plus 215 bps.

An $11 billion offering of 5.15% notes due 2023 priced at Treasuries plus 225 bps, and a $6 billion offering of 6.4% 20-year notes sold with a spread of Treasuries plus 250 bps.

Finally, a $15 billion issue of 6.55% 30-year bonds was sold with a spread of Treasuries plus 265 bps.

"All tranches dramatically tighter in the [gray market]," another source noted early Wednesday.

The deal was originally expected to come in at between $20 billion and $30 billion, but one source noted that the size ballooned due to investor interest and cheap prices.

One market source saw the deal's order book reach a "massive" $100 billion.

Proceeds will be used to finance Verizon's acquisition of Vodafone's 45% ownership in Verizon Wireless.

The rest of the corporate bond space was mostly quiet due to the mega-deal, though FMS Wertmanagement did bring a new issue of $1.5 billion of 1.125% senior notes.

The notes due 2016 priced with a spread of Treasuries plus 26 bps.

Elsewhere in Wednesday's market, the Federal Home Loan Bank System will not issue Global Notes in September, according to a press release issued on its monthly announcement date.

In the secondary market, Verizon's new notes tightened more than 50 bps, with the fixed-rate short-dated tranche nearly 70 bps firmer, traders said.

"It was kind of a non-event," one trader said. "They priced way too cheap."

Verizon's existing notes were wider in heavy trading in the days leading up to Wednesday until the issues firmed early in the session ahead of the deal pricing, sources said.

"We felt pressure on telecom bonds the last couple of days," a market source said.

The Markit CDX Series 20 North American Investment Grade index firmed 2 bps to a spread of 76 bps.

Verizon's record-breaking deal

Verizon's $49 billion of bonds were sold in eight tranches.

The issue included the following:

• $2.25 billion of floating-rate notes due 2016 sold at par to yield Libor plus 153 bps;

• $4.25 billion of 2.5% notes due 2016 with a spread of Treasuries plus 165 bps, or 99.923 to yield 2.527%;

• $1.75 billion of floaters due 2018 priced at par to yield Libor plus 175 bps;

• $4.75 billion of 3.65% notes due 2018 priced with a spread of 190 bps over Treasuries. The notes sold at 99.996 to yield 3.651%;

• $4 billion of 4.5% seven-year notes sold at 99.87 to yield 4.522%, or Treasuries plus 215 bps;

• $11 billion of 5.15% notes due 2023 sold with a spread of Treasuries plus 225 bps. Verizon priced the notes at 99.676 to yield 5.192%;

• $6 billion of 20-year notes priced with a spread of Treasuries plus 250 bps. The 6.4% notes sold at 99.9 to yield 6.409%; and

• $15 billion of 6.55% bonds due 2043 sold with a spread of Treasuries plus 265 bps. Pricing was at 99.883 to yield 6.559%.

The deal's "attractive" pricing helped bring in more than $100 billion of orders, one source said.

Verizon's new issue shattered Apple's previous bond record. The computer and mobile communications device company previously held the record of $17 billion, which priced in six tranches in April.

Proceeds will be used to finance Verizon's acquisition of Vodafone's 45% ownership in Verizon Wireless.

Barclays, BofA Merrill Lynch, J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC were the active bookrunners.

Passive bookrunners were Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Mizuho Securities USA Inc., Mitsubishi UFJ Securities, RBC Capital Markets LLC, RBS Securities Inc. and Wells Fargo Securities LLC.

Verizon is a New York-based telecommunications company.

Verizon firms in secondary

Verizon's 2.5% notes due 2016 came in to 97 bps bid, 92 bps offered and later to 98 bps bid, 95 bps offered, according to traders.

The 3.65% notes due 2018 were quoted better at 133 bps bid, 128 bps offered and 132 bps bid, 129 bps offered.

The tranche of 4.5% notes due 2020 firmed to 163 bps bid, 158 bps offered, a trader said. The notes were seen by a trader at another desk going out at 166 bps bid, 163 bps offered.

Traders saw the 5.15% notes due 2023 better at 195 bps bid, 190 bps offered and 193 bps bid, 191 bps offered.

Further out, the 6.4% notes due 2033 traded in to 200 bps bid, 195 bps offered. At another desk, a trader saw the notes at 205 bps bid, 200 bps offered.

The 6.55% bonds due 2043 traded tighter going out at 225 bps bid, 220 bps offered and 227 bps bid, 224 bps offered, according to traders.

FMS sells $1.5 billion

Wednesday's primary also saw FMS sell $1.5 billion of 1.125% senior notes due 2016 with a spread of Treasuries plus 26 bps, according to a 424B5 filing with the Securities and Exchange Commission.

Pricing was at 99.897 to yield 1.159%.

Barclays, BNP Paribas Securities Corp., Goldman Sachs International and Morgan were the bookrunners.

Proceeds from the sale will be used to refinance existing liabilities in order to replace short-term funding with long-term funding, and any remaining proceeds will be used for general corporate purposes.

The notes are guaranteed by the Federal Republic of Germany.

The financial services company is based in Munich.

FHLB forgoes Global Notes

Meanwhile, FHLB announced on Wednesday that it will not issue Global Notes in September.

The next opportunity for FHLB to announce or defer an issue will be Oct. 16.

The government-sponsored bank system for financial institutions is based in Washington, D.C.

Bank CDS costs decline

Investment-grade bank and brokerage credit default swap costs tightened on Wednesday, a market source said.

Bank of America Corp.'s CDS costs firmed 1 bp to 102 bps bid, 106 bps offered. Citigroup Inc.'s CDS costs fell 2 bps to 94 bps bid, 98 bps offered. JPMorgan Chase & Co.'s CDS costs closed 2 bps tighter at 84 bps bid, 88 bps offered. Wells Fargo & Co.'s CDS costs declined 1 bp to 59 bps bid, 63 bps offered.

Merrill Lynch's CDS costs tightened 2 bps to 97 bps bid, 103 bps offered. Morgan Stanley's CDS costs firmed 2 bps to 133 bps bid, 138 bps offered. Goldman Sachs Group, Inc.'s CDS costs fell 2 bps to 123 bps bid, 127 bps offered.

Paul Deckelman contributed to this review

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