How Verizon Communications Inc (NYSE:VZ) managed funds
Verizon Communications Inc (NYSE:VZ)’s bond sale post Vodafone Group Plc (NASDAQ:VOD) deal
Verizon Communications Inc (NYSE:VZ) might take on almost $50M in new-debt in a huge bond sale. This will help the company pay for the $130B of Wireless Verizon shares acquisition. It already owns a 55% stake in Verizon Wireless and on 2 September, agreed to buy the remainder 45% from the Vodafone Group Plc (NASDAQ:VOD), the U.K –based telecom giant for an amount of $58.9B in cash, $60.2B worth of Verizon shares, $5B in loan-notes as well as other consideration. The proceeds of the massive bond offering will be utilized for the cash part of the deal.
The Wall Street Journal reported that investors have put-in orders of over $90M of Verizon bonds. What is actually fuelling this humungous demand is the premium (spread) over the yield on the comparable benchmark government-bonds that the company is willing to pay. Verizon has initialized this deal as it wants 100% control of the wireless-unit. The expectation is that there will be some moves in the future that will benefit the mobile market.
A medley of bonds
The Verizon offering will have a variety of bonds which will be spaced over a number of trances. There will be around $18-$20B of fixed rate, 20-year as well as 30-year bonds, $15B of floating as well as fixed-rate notes with a 7 or 10 year maturity. In addition, there will be around $13-$15B in floating rate notes with a 3-5 year maturity.
This offering is so large in size that there is a distinct possibility that it will affect yields of a majority of other corporate bonds in the short-term. The one thing to keep in mind is that these yields might just come at a cost since the bond prices always move inversely to the yields. Over time, lower bond prices eat-into the total return on the fixed income investment.