Magallanes, Rogers bring $37 billion in M&A-related issues; deals pulled forward ahead of Fed

By Cristal Cody

Tupelo, Miss., March 11 – Investment-grade supply swept past $67 billion over the week with about half of the week’s volume from two merger-and-acquisitions-related deals.

Both deals were pulled forward in the calendar, a trend seen over the past few weeks, according to market sources.

Magallanes, Inc.’s $30 billion 11-tranche offering of senior notes (Baa3/BBB-/BBB-) on Wednesday is the largest investment-grade bond deal to print so far this year with the deal slated to fund a joint venture with AT&T Inc. and Discovery, Inc.

AT&T plans to spin off entertainment assets including HBO and CNN into a new venture with Discovery in a $43 billion transaction.

The bond deal priced midweek after racking up final book demand of more than $101 billion and came 15 basis points to 20 bps tighter than initial talk, a source said.

The 30-year issue priced with the largest tranche size at $7 billion and attracted book demand of $20.8 billion, or a bid-to-cover ratio of 2.97, the source said.

The deal’s most over-subscribed tranche was the $1.5 billion offering of 4.054% seven-year notes, the source noted. Final book size on the issue was $9.65 billion with a 6.43 times bid-to-cover ratio.

Magallanes’ notes tightened in the secondary market about 2 bps to 13 bps across the maturity curve, a market source said.

The AT&T subsidiary’s 5.141% notes due March 15, 2052 firmed 7 bps, while the shorter-dated tranche of 3.755% notes due March 15, 2027 came in 13 bps to 177 bps offered.

Rogers Communications Inc. kicked off the week’s M&A bond supply when it sold $7.05 billion of notes (Baa1/BBB+) in five tranches, as well as C$4.25 billion of notes in four parts, on Monday to fund its takeover of Shaw Communications Inc.

The notes priced 15 bps to 20 bps tighter than initial talk, a source said.

Rogers’ notes were mixed in the secondary market with the paper mostly trading about 1 bp to 2 bps tighter, a source said.

The $2 billion tranche of 3.8% notes due March 15, 2032 eased 2 bps.

Rogers’ offering had been on the M&A calendar since March 2021, but was expected to come later due to federal regulations and other issues, while AT&T’s deal was expected in the market in mid-2022, sources said.

Bankers and issuers are “in unchartered territory and they’re pulling forward,” a syndicate source said, noting the rush to print ahead of the Federal Reserve’s monetary policy announcement on March 16, despite carrying risk before settlement into a weekend amid Russia’s continued invasion of Ukraine.

“Friday is a go-day,” the source said. “Two months ago, everybody would consider it not a go-day, but they’re breaking all rules of engagement just to get deals done.”

Oracle, Microsoft in pipeline

The pipeline of announced deals with potential investment-grade funding implications increased to $340 billion in February from $325 billion in January and $235 billion in December, according to a BofA Securities, Inc. research note.

Some issuers being eyed for potential funding needs in the high-grade market include Oracle Corp., which in December announced a $28.3 billion acquisition of Cerner Corp. that is expected to close in 2022, a source said.

Microsoft Corp., which announced in January a $68.7 billion all-cash acquisition of Activision Blizzard Inc., is in the longer-term M&A pipeline.

Microsoft could issue as much as $30 billion to fund the Activision deal, though the transaction is not expected to be completed until 2023, a source said.

Toronto-Dominion Bank also is on the M&A calendar in 2022 after announcing on Feb. 28 a $13.4 billion acquisition of First Horizon Corp. The deal includes additional compensation to First Horizon shareholders if the transaction does not close before Nov. 27.

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