Going long
In a groundbreaking trade for the Australian dollar market, Verizon provided the first public 20-year corporate bond in the currency as part of a A$1.25bn (US$855m) three-part benchmark offering. Underpinned by Taiwanese accounts, the emergence of the long-dated leg addressed a market clamouring for yield.
Far from being a small, bespoke part of the transaction, the 20-year was the largest of the three tranches at A$500m, driven by appetite from coupon-focused life insurers in Taiwan.
“The unique 20-year note opened up a new way for credit investors to get yield into their portfolios and underlined the increasing depth and breadth of the Australian market,” said Craig Johnston, syndication manager at Deutsche Bank.
Verizon's 3.50% November 2039 Kangaroo priced at par, equivalent to asset swaps plus 195.25bp and almost 10bp tighter than 205bp area guidance.
The US corporate also targeted 6.5 and 10.5-year maturities.
The A$450m 2.10% May 2026 note priced at 99.804 to yield 2.135%, inside 115bp area guidance at asset swaps plus 110bp, while the A$300m 2.65% May 2030 note priced at 99.818 to yield 2.67%, inside 145bp area guidance at asset swaps plus 140bp.
On a relative pricing basis the bonds paid modest concessions against Verizon’s US dollar and euro curves and came flat to its Australian dollar bonds.
Deutsche Bank, Mizuho, RBC Capital Markets and TD Securities ran the trade.
Verizon is a regular visitor to the Formosa market, its most recent Formosa being a US$510m 5% 32-year non-call five note in February.
Verizon became the third US multinational in 14 months to raise A$1bn-plus from multi-tranche trades in the Kangaroo market with the deal helping calm fears of a complete shutdown in issuance following the US corporate tax reform in December 2017.
That reform reduced the tax rate on repatriated profits from 35% to around 15%, thereby removing or watering down a key incentive for US firms to issue bonds offshore and bring the funds raised back home (tax free) to pay dividends and finance share buybacks.
Verizon's issue, alongside bonds from AT&T and McDonald's, demonstrated there remains compelling diversification benefits from Kangaroo issuance, as long as volume and price levels are satisfactory.
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