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* Verizon set to smash Apple's $17bn record for biggest bond
* Over $90bn orders as price guidance unchanged from initial
* Size, juicy concessions spark fears of market repricing
By Josie Cox and Danielle Robinson
LONDON/NEW YORK, Sept 10 (IFR) - Verizon Communications isexpected to sell between $45 billion to $49 billion in bonds onWednesday to finance the $130 billion buyout of its wirelessoperations, making it the biggest corporate issue on record bysome distance.
The deal, which attracted over $90 billion of orders onTuesday after the company opted for size over tight pricing,will dwarf Apple's record-setting US$17bn offering issued inlate April.
A source with knowledge of the deal said "Verizon preferredto just get it all out of the way so there isn't an overhang ofanother potential big deal in the market."
The overwhelming response to the offering follows Verizon'sdecision to offer bargain basement prices for the notes, toensure it raises the bulk of the $49 billion of multi-currencybonds it needs to help pay Vodafone for its 45% stake in VerizonWireless.
The world's biggest telecom company shocked the market byoffering investors official price guidance in line with initialtalk, which was set purposely so cheap that investors couldn'trefuse the offer.
Pricing of the deal is scheduled between 8am and 11am onWednesday. Investors are hearing that it will raise between $13billion to $15 billion in fixed and floating rates bonds withthree- and five-year maturities, $15 billion from 7-year and10-year bonds and between $18 billion to $20 billion in 20- and30- year bonds.
"We are hearing that the 10 year will likely be twice as bigas the seven-year and the 30-year about twice as big as the20-year," a source said.
Guidance on some of the longer-dated tranches were awhopping 135 basis points wider than where Verizon's existingbonds in comparable maturities were trading in late August, andbefore news of its acquisition was leaked.
Orders on the eight-tranches came thick and fast throughoutthe morning, growing from $30 billion at 9am EST to triple thatnumber by the time order books closed.
BOND TAKE-OUT
The Verizon bond will partly refinance a $61 billionone-year bridge loan it has taken out to pay for thedebt-funding portion of the acquisition. Of the $49 billion inbond financing, its plan was to raise $5-10 billion in the euroand sterling market.
The rest of the $61 billion bridge will be replaced withabout $12 billion of three and five year term loans.
The deal is so large and complex, that underwriters havedecided to take two days rather than the usual one to announceand then price the deal.
The order book closed at 3pm and now bookrunners Bank ofAmerica Merrill Lynch, Barclays, JP Morgan and Morgan Stanleywill spend all night deciding how many of the orders it willfill.
The hope is that Verizon will leave some demand unsatisfied,so that the deal performs when it is free to trade.
POTENTIAL VOLATILITY
Market participants said also that it made sense thatVerizon would want to get as much of possible in one hit giventhe volatility in US Treasury rates and the looming Federal OpenMarket Committee meeting starting on September 17.
"From a capital structure perspective, paying a largerconcession today is insurance against testing the market withanother super sized deal in the future," said Scott Kimball,senior portfolio manager at Taplin, Canida & Habacht, part ofBMO Global Asset Management.
"The latter risks potentially increasing their totalfinancing costs beyond the amount of additional concessiontoday."
The deal has already caused a repricing of Verizoncompetitors' bonds, such as AT&T and Comcast, and could affectthe levels of other companies outside of the telecommunicationssector, according to some investors.
"This deal will have investors re-evaluating bonds to seewhat looks mispriced compared with the levels on Verizon," saidDavid Tiberii, a senior portfolio manager at T.Rowe Price.
He said the bond could also potentially impact pricinglevels on deals in the pipeline for next week.
"A lot of excess cash has been sucked up by the Verizon dealso next week, when new deals come to market, there will eitherbe more selling to buy a new deal, or the new deal's concessionwill widen out."
NO CHANCES TAKEN
Guidance on the six fixed rate tranches was set atTreasuries plus 165 basis point area +/-5bp on the three-year,T+190bp area +/-5bp on the five-year, T+215bp area on the sevenyear, T+225bp area +/-5bp on the 10-year, T+250bp area +/-5bpson the 20-year and T+265bp area +/-5bps on the 30-year.
Guidance on the three-year and five-year floating rate noteswas set at three-month Libor plus the equivalent spread on thefixed rate notes.
At those levels, the new issue concession is around 50-85bpbased on where Verizon's existing bonds were trading on Monday,but as much as 135bp based on where those bonds were tradingbefore the $130 billion acquisition of Vodafone's 45% stake inVerizon Wireless was announced more than a week ago.
Jens Vanbrabant, a London-based portfolio manager at ECMAsset Management, said the guidance on the 10-year indicated acoupon of approximately 5.2%, which was cheap for a BBB+ credit.
Constellation Brands' $1 billion 10-year, issued in April,has a coupon of 4.2%, and is rated BB plus, compared withVerizon's BBB plus rating.
"Obviously it is a big deal but it seems priced to go,"Vanbrabant said.
