By KEN SWEET
FILE – In this Thursday, June 6, 2013, file photo, pedestrians use their cell phones as they pass a Verizon Wireless store near Union Square, in New York. Verizon Communications announced Wednesday, Sept 11, 2013, it has sold $49 billion in bonds, the largest corporate bond sale in history. (AP Photo/John Minchillo, File)
NEW YORK (AP) — Verizon raised $49 billion on Wednesday in the largest corporate bond deal ever.
The sale dwarfs the previous record, Apple’s sale of $17 billion in bonds in April, and proceeds from the sale on Wednesday will help Verizon buy the rest of its U.S. wireless business from partner Vodafone.
The record sale shows that, despite the recent rise in yields for government bonds, investors are still looking to invest in debt — particularly if it involves quality companies such as Verizon.
Verizon’s plans to pay $130 billion for Vodafone’s 45 percent stake in Verizon Wireless, and is expected to rank as the second-largest deal when completed. Along with the money from its bond sale, Verizon will use cash and stock to pay for the buyout.
Verizon’s bond sale was huge in every way: The offering is nearly triple Apple’s sale. The debt will come due at eight different times, from three to 30 years. Demand for the debt was high, with investors placing more than $100 billion in orders for Verizon’s offering.
Despite the demand, Verizon did have to pay a hefty price to investors. It priced $11 billion of its 10-year notes at a yield of 5.19 percent, according to a deal document obtained by The Associated Press. That is well above the 4.51 percent yield for similar bonds Verizon had issued previously. By comparison, investors are buying 10-year Apple bonds at a yield of 3.86 percent, a reflection of that company’s near-pristine credit and $147 billion in cash.
Verizon likely decided to pay higher interest rates because it needed to wrap up its $130 billion buyout quickly, bond investors said.
“(The buyout) is a big strategic deal for them and they needed the money,” said Michael Collins, senior investment officer of Prudential Fixed Income, who bought Verizon bonds as part of Wednesday’s sale.
Verizon’s massive bond sale comes at a critical time for bond investors. In June, Federal Reserve Chairman Ben Bernanke said the central bank was considering pulling back on its bond-buying program, which has kept interest rates at historic lows in an effort to stimulate the economy.
As a result, the yield of the U.S. 10-year Treasury note, the benchmark for all bonds public and private, is at 2.96 percent, almost double the 1.63 percent yield from early May.
There was talk among investors that the recent rise in interest rates might have pushed Verizon to do its deal with Vodafone, in order to lock in these rates before the Fed starts to phase out its bond buying.
While demand for bonds may have slowed broadly, demand for corporate bonds has remained steady, Prudential’s Collins said. Verizon’s bond sale is likely to spur more companies to issue debt, particularly if demand for Verizon’s bonds stays high. For example, the biggest part of Verizon’s offering was $15 billion in 30-year bonds, which had a yield of 6.55 percent, a higher yield than some significantly more risky junk bonds.
“If yields remain high, there’s going to be strong demand for corporate bonds from a variety investors — from pension funds to insurance companies, and eventually retail investors,” Collins said.
