Verizon took advantage of a S&P outlook change and the tightest spreads in the euro market this year to raise €3.08bn-equivalent across euros and sterling on Tuesday.
The telecommunications company jumped into the market a day after S&P switched the outlook on its BBB+ rating to positive from stable, citing positive delivering progress. And with average euro corporate spreads at a 2019 low of 80.6bp over swaps at the time of the issue – nearly 26bp tighter year-to-date, according to iBoxx data – the stars aligned.
“Proceeds will go towards repaying short-term debt,” a lead syndicate banker said.
Verizon has one of the largest corporate debt stacks in the world – with total debt of US$187bn and bond maturities of US$104.5bn, according to Refinitiv data. S&P said it could upgrade the company if it maintains leverage below 2.5x. On Verizon’s latest earnings call, executives said net debt to Ebitda was 2.3x.
Verizon also carries Baa1/A- ratings from Moody’s/Fitch (both stable). The company has been trying to steer clear of investors in the US dollar market, bar a Green bond earlier this year, so as not to overload them.
But while the company is not looking to lever up, it does want to tidy up the front end of its curve, the lead said. AB InBev, another company with a hefty debt stack, completed a similar clean-up the week before.
Verizon is also following a long line of its US peers that have been jostling to take out funding in euros in a bid to diversify. US companies have now issued over €31.7bn in euros year-to-date, according to IFR data as of Friday. Last year, that number was just €3.4bn over the same period.
“The euro market is pricing competitively to dollars,” the syndicate banker said.
Most US companies are targeting the euro market rather than sterling. Verizon was last in both the euro and sterling markets in 2017, when it priced a €4.7bn-equivalent four-trancher with tenors from nine to 20 years.
Companies have been opportunistically dipping into the sterling market as rates tank on worries about a no-deal Brexit. The yield on 10-year Gilts slipped under 1% on March 25 for the first time since September 2017. On the day of Verizon’s issue, it was 1.02%.
“The market revalues, readjusts and moves on,” the lead banker said.
“Investors and issuers are seeing Brexit more as a rates question than a credit question,” a banker away said.
Source Nasdaq