Midday Commentary: Verizon tranches tighten; investment-grade bonds open softer

By Cristal Cody

Tupelo, Miss., Sept. 12 - Verizon Communication Inc.'s record $49 billion eight-tranche offering of notes (Baa1/BBB+/A-) sold on Wednesday traded stronger in the secondary market early Thursday, while overall credit spreads opened softer, according to market sources.

"Credit spreads are taking a breather, opening marginally wider following a very busy day in the corporate bond market," RBC Capital Markets, LLC analysts said in a note.

The Markit CDX Series 20 North American Investment Grade index tightened 2 basis points on Wednesday to a spread of 76 bps.

Verizon sold eight tranches, including two tranches of floating-rate notes.

"Across the curve, and including the two floating-rate notes, the bonds came at significant new issue concessions to the tune of 50-75 bps," the RBC analysts said. "These concessions were fully crystallized as the bonds broke 25 to 80 bps tighter as they entered the secondary market for trading. For context, the long bond tightened 40 bps once it began trading, which equates to $5.90 of profit."

Verizon's deal attracted more than $100 billion in orders.

The New York City-based telecommunications company plans to use the proceeds to purchase Vodafone Group plc's 45% stake in Verizon Wireless.

Verizon stronger in secondary

In secondary trading on Thursday, Verizon's 2.5% notes due 2016 tightened to 92 bps bid, 88 bps offered from where the notes traded at 97 bps bid, 92 bps offered going out on Wednesday, a trader said.

The notes rose to 102.201 in early trading. Verizon sold $4.25 billion of the notes with a spread of Treasuries plus 165 bps, or 99.923 to yield 2.527%.

The tranche of 3.65% notes due 2018 came in to 118 bps bid, 115 bps offered, tighter than the 133 bps bid, 128 bps offered quote seen late Wednesday. The notes rose higher to 103.814, the trade said.

Verizon sold $4.75 billion of the 3.65% notes due 2018 with a spread of 190 bps over Treasuries. The notes priced at 99.996 to yield 3.651%.

Verizon's tranche of 4.5% notes due 2020 tightened in early trading to 153 bps bid, 150 bps offered from trading at 163 bps bid, 158 bps offered late Wednesday. The notes climbed to 104.319 in the secondary market on Thursday.

Verizon sold $4 billion of the seven-year notes at 99.87 to yield 4.522%, or Treasuries plus 215 bps.

The offering of 5.15% notes due 2023 tightened to 180 bps bid, 177 bps offered and rose to 104.25 in Thursday's early session, a trader said. The notes were seen going out on Wednesday at 195 bps bid, 190 bps offered and 193 bps bid, 191 bps offered.

Verizon sold $11 billion of the 5.15% notes due 2023 with a spread of Treasuries plus 225 bps, or 99.676 to yield 5.192%.

In the longer-dated issues, Verizon's 6.4% notes due 2033 firmed to 195 bps bid, 192 bps offered, a trader said. The notes climbed to 107.454 in early secondary trading on Thursday.

The tranche was seen going out on Wednesday at 200 bps bid, 195 bps offered and 205 bps bid, 200 bps offered areas.

Verizon sold $6 billion of the 20-year notes with a spread of Treasuries plus 250 bps, or 99.9 to yield 6.409%.

The long-dated tranche of 6.55% bonds due 2043 tightened to 217 bps bid, 214 bps offered and jumped to 107.787 in secondary trading on Thursday. The notes traded going out on Wednesday in the 225 bps bid, 220 bps offered area.

Verizon sold $15 billion of the 30-year bonds with a spread of Treasuries plus 265 bps. The bonds priced at 99.883 to yield 6.559%.

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