Grabbing the limelight
Size, execution and purpose made Warner Bros Discovery’s US$30bn bond the largest investment-grade deal of 2022, a clear star in a year when volatility made it hard for issuers to come to market.
The offering’s heft reflected the ambition of the underlying M&A transaction. The bonds were issued to fund a special cash payment to telecoms operator AT&T as part of a US$43bn spin-off transaction that merged WarnerMedia with Discovery, creating the world's second-largest media company.
“This was the aircraft carrier; this was the trade everyone wanted to buy,” said Matt Gannon, a managing director at Barclays.
Demand for the new bond ran high despite the difficult market environment in mid-March which saw new issues underperforming in the secondary market.
Following two days of marketing involving more than 240 accounts, Warner Bros Discovery drew US$20bn of demand within the first hour of the deal’s announcement to eventually land a peak order book of US$107bn.
Making the deal even more noteworthy was that it came with a low Triple B rating, a market segment which produced underwhelming supply during the year amid recession concerns. Indeed, the media giant’s jumbo offering exceeded by US$9bn the previous record deal from a low Triple B borrower: aircraft lessor AerCap’s US$21bn nine-tranche deal in October 2021 for its US$30bn acquisition of GE Capital Aviation Services.
To get investors onside, Warner Bros Discovery emphasised its credibility and commitment to debt reduction, noting that the same management team had achieved a similar deleveraging path after Discovery’s 2018 acquisition of TV cable company Scripps Networks Interactive.
“I think Warner Bros Discovery did a really good job,” Gannon said. “The story that they told was incredibly well received.”
Investors also considered the new issue as a must-have because it would form a large and liquid constituent of corporate bond indices.
Spreads tightened at least 15bp on the 11-part deal made up of two, three, five, seven, 10, 20, 30 and 40-year fixed-rate tranches, as well as a two-year floater.
In the end, Warner Bros Discovery achieved its goal of maximising duration, with the notes coming in with a weighted-average maturity of 17.1 years.
Global coordinators were Goldman Sachs and JP Morgan. The only other active bookrunner was Barclays.
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