By Dow Jones Business News, September 09, 2013, 07:05:00 PM EDT
In a development that is sending ripples throughout the corporate-bond market, Verizon Communications Inc. is expected
to raise $20 billion or more Wednesday in what would be the largest-ever debt sale by a company.
The New York telecommunications company will sell debt ranging in maturity from three to 30 years, the banks backing
the deal said Monday. The deal would help fund Verizon's $130 billion buyout of U.S. wireless joint-venture partner
Vodafone Group PLC.
The new 10-year Verizon bonds were being shopped around to yield 2.25 percentage points more than comparable
Treasurys, according to initial price suggestions. That is about 0.70 percentage point more than where nine-year Verizon
bonds were trading.
The arrangers of the deal, J.P. Morgan Chase & Co., Morgan Stanley, Barclays PLC and Bank of America Merrill Lynch,
said Monday they would sell both fixed- and floating-rate debt in the offering, which is on track to eclipse a $17
billion deal brought to market this past spring by Apple Inc. as the largest to date. The banks didn't specify the
amounts or yields of the new securities.
Anticipation of what would be a record-breaking deal already is pushing bond prices down and yields up for Verizon and
other companies in the telecommunications industry. That turbulence has broad implications for investors and for
companies that need new financing.
"This is a big question mark...on where other corporate bonds trade," says Kenneth Berlin, a bond analyst at Legal &
General Investment Management Americas.
The yield on Verizon's nine-year bond has risen by more than half a percentage point to 4.512% since deal chatter
started in late August, according to MarketAxess. Yields on similar bonds issued by competitor AT&T Inc. have risen 0.41
A spokesman for Verizon declined to comment. A spokeswoman for AT&T declined to comment.
Companies have sold a record amount of debt over the past year and a half, while yields on their bonds have declined.
But since the Federal Reserve indicated in May it might taper its bond-buying program, sentiment has shifted and yields
have risen, spurring companies contemplating large purchases to pull the trigger.
"We've been waiting for M&A activity to pick up and now you're starting to see some of these large deals," such as the
buyout of Vodafone's stake in Verizon Wireless, says Kathleen Gaffney, co-director of investment-grade fixed income at
As companies raise more debt for purchases, the prices of their existing bonds will fall, creating bargains, says Ms.
Gaffney, who doesn't own Verizon bonds. But for those already invested in the debt, the process can be painful.
"My view is the whole sector's going to get hit with that much coming in, but Verizon's going to take the worst of
it," said Mary Talbutt, portfolio manager and trader at Bryn Mawr Trust Co. Still, Ms. Talbutt said she planned on
holding on to the Verizon bonds currently in client accounts, noting that most of bonds mature in three years or less.
She said she would consider buying the new Verizon bond.
"It may be that this one becomes a once-in-every-few-years opportunity if the price and size is balanced," says Tom
Murphy, a bond portfolio manager at Columbia Management.
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