Dangling relatively generous yields, Verizon Communications VZ -0.02% has started to shop bonds to investors in what will likely result in the biggest corporate debt sale in history.
Verizon is planning to sell as much as $50 billion in bonds in several stages in order to finance the telecommunications company’s $130 billion purchase of Vodafone VOD -1.86%’s stake in Verizon Wireless. In this week’s first part of the deal, Verizon is trying to sell as much as $30 billion of fixed and floating rate bonds with different maturities, which would exceed the $17 billion of bonds Apple sold earlier this year.
Wall Street is cheering the fee bonanza being created by Verizon’s huge deal for the portion of Verizon Wireless it doesn’t already own. The debt offering is being managed by Barclays BCS +1.8%, Bank of America BAC +1.31%, JPMorgan Chase & Co., and Morgan Stanley.
Initial demand appeared to be strong, but in order to pull of the massive debt sale Verizon will probably need to offer yields that are richer than the levels at which its existing bonds have been trading. After years of mulling over taking full control of Verizon Wireless, one of the reasons Verizon finally decided to pull the trigger on the deal was a sense that the era of cheap corporate debt that has seen companies sell records amounts of debt was coming to an end and the window of opportunity would be closing.
The Verizon mega-debt deal has started to rock the corporate debt markets as investors adjust to the wave of investment-grade bonds hitting the market. It’s a tough game to play—just ask investors who snapped up Apple’s ibonds.
with the US at a threshold of a long run for rising rates , solid , corporate bond offerings will offer a haven for
capital that will be leaving the US bond market .... after 30 years of declining rates , bonds have most likely
put in the top(price) and the next long term trend will be rising rates ...
corporations are rushing to lock in current rates on long term debt.
the bugaboo here is most likely , that , the massive rotation hoped for from bonds to stocks will be mitigated , as
long term corp debt will compete with stocks ...
another point to ponder is that while US treasury debt rates have fallen , a lot of bond money has gone offshore
for better rates .. much of that capital could be expected to repatriate into corp bonds ...
now .. if the party goes too long , then corp bonds will hit a wall in 2-3 years and bust themselves ...
i still haven't seen anything in print concerning the preferred VZW shares ?? will they be retired ? or held by
VZ for a stream of cash ? garce
So Verizon being offering this huge bond issuance will almost guarantee an oversubscription of low cost debt, as long as they do it now early on before rates start climbing. If they take a greater portion of the purchase, by the way of debt to stock, they would get a better deal then having to pay more out in dividends. If there is a large demand from the US or other country's for fixed bond debt, Verizon would be better off oversubscribing to the bonds and taking the additional cash from that sale and buy VZ stock in a large repurchase plan. So maybe all the naysayers hammering the stock because of the large debt outlay may miss out on a cheap capital play by Verizon.