Oracle prices splashy US$20bn deal


By William Hoffman

NEW YORK, April 3 (IFR) - IT company Oracle on Monday priced the largest US high-grade corporate bond deal of year so far, taking a surprising amount for a transaction that is not linked to specific M&A.

The US$20bn six-part bond is expected to fund general corporate purposes, share buybacks and could be used for future M&A, even though no deal is announced at this time.

It was the largest deal on a day in which 12 borrowers raised US$37.175bn in the US high-grade bond primary for the largest volume day of the year, according to IFR data.

"It's a war chest deal," one syndicate banker away from the trade said.

"US$20bn is a huge number, bigger than I would have expected."

The deal received a lot of investor demand, but came across to several market participants as what one described as "insensitive".

Some companies need access to the market just to keep the lights on and maintain payroll, but Oracle is taking more size than it needs out of the market to fund a US$15bn share repurchase authorisation, one fixed-income broker-dealer analyst said.

"To use the proceeds for share repurchases seems opportunistic and out of tune," the analyst said.

An investor agreed. "Companies don't need to be focusing on their stock; they just need to be doing the right things: keeping a strong balance sheet, keeping liquidity and shoring up liquidity when they need it to get them through this time," he said.

Some market participants did admit though that if the funds are used for M&A somewhere down the line it could be looked at as a shrewd offensive move in a moment of dislocation in the market.

"In the tech space you may have some smaller companies that were ready to IPO and if you have some cash in the barrelhead, you're in a better position to execute," said Matt Daly, head of corporate credit research at Conning.

When the deal was announced and initial price thoughts released, the software and computing company flagged it would be downgraded by one notch by Fitch to A– with a negative outlook and by two notches by Moody’s to A3 with a stable outlook. It duly was.

S&P maintains an A+ rating, but is expected to downgrade later this year if the company follows through with share repurchase programme.

"Governance risks, specifically Oracle's shareholder-oriented financial policies, are a key driver of today's ratings action," Moody's analyst Raj Joshi said in the ratings report.

"Oracle's proposed debt issuance, the recent US$15bn increase in share buyback authorisation, and its history of elevated share repurchases lead us to believe that Oracle's fiscal policy will continue to target aggressive share repurchases and gross leverage will remain high through fiscal year 2022."


Bookrunners Bank of America, Bank of New York Mellon, JP Morgan and Wells Fargo started IPTs cheap and tightened spreads by 40bp through price progression.

Still, the company paid up to take size, giving up around 33bp–38bp of new-issue concessions over its secondary curve, according to IFR calculations. CreditSights placed the premium closer the 60bp.

Oracle priced the US$3.5bn five-year at 210bp over Treasuries, the US$2.25bn seven-year, US$3.25bn 10-year, US$3bn 20-year and US4.5bn 30-year tranches all at 225bp over and the US$3.5bn 40-year at 250bp over.

Some of the shorter-dated tranches were trading as much as 40bp tighter in the secondary market on Thursday, while the longer maturities barely budged from pricing levels, according to MarketAxess data.

Two other tech names were in the high grade-primary market this month: Chipmaker Intel with a US$8bn six-part trade and Nvidia with a US$5bn four-part transaction.

The Oracle deal landed wide of where these bonds tightened to in the secondary.

For example, Intel's 3.9% 2030 is trading at around 178bp over Treasuries while Nvidia's 2.85% 2030 is trading around 195bp over, according to MarketAxess data.

(This story will appear in the April 4 issue of IFR Magazine.)

((william.hoffman@thomsonreuters.com; 646 223 6141;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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