Thu Sep 12, 2013 12:46pm EDT
NEW YORK, Sept 12 (IFR) - Verizon's new US$49 billion bonds soared in secondary trading on Thursday, meaning tens of millions in potential profits for investors who got in on the largest corporate bond issue ever.
The telecoms giant awed the bond market with the offering on Wednesday, and by midday Thursday the new issue had rocketed up as much as seven-plus points in dollar price.
The eight different maturities of the massive deal were all trading at least 45 basis points (bp) tighter than Wednesday's pricing, with some tightening as much as 80bp.
The US$15 billion 30-year tranche, where investors get the biggest bang for their buck because of the long maturity, was trading at US$107.467, giving it a spread of 219bp over Treasury bonds versus a 265bp spread at pricing.
That represents roughly a US$64 million potential profit for any investors that were allocated US$1 billion of the 30-year Verizon bonds.
According to market sources, there were at least two US$1bn orders in the 30-year piece alone, while one asset management firm put in US$7 billion of orders across the different maturities.
"The amount of tightening has been extraordinary," said Matt Duch, senior portfolio manager at Calvert Investment Management.
As bond yields tighten, bond prices rise - but few in the market expected to see such a vast degree of tightening.
Tightening of just 20bp normally indicates that a bond issuer has priced a deal too cheaply, but even bankers away from the deal said that the sheer size of the issue required a large concession.
"This was obviously a transaction that was all about size, not price," said one banker not involved with the Verizon trade.
The $49 billion raised, along with about $12 billion of term loans, will completely refinance the $61 billion one-year bridge loan put in place last week to cover the debt portion of Verizon's acquisition of Vodafone's 45% holding in Verizon Wireless.
"The issuer had accepted that this was what it would take if it wanted to get its potentially much more expensive bridge loan taken out in one hit," the banker said.
"In order to flush out so much money, it needed to be cheap to pretty much everything else in the investment-grade market."
Around midday, these were the levels being quoted for the eight tranches of the deal:
VZ 6.55% 2043s - T+219bp $107.467
VZ 6.40% 2033s - T+196bp $107.294
VZ 5.15% 2023s - T+179bp $103.823
VZ 4.50% 2020s - T+148bp $103.811
VZ 3.65% 2018s - T+115bp $103.801
VZ 2.50% 2016s - T+85bp $102.273
VZ FRN 2018s - $103.57
VZ FRN 2016s - $102.51
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