Foundry JV Holdco, a Brookfield unit backing Intel's US$30bn plan to build semiconductor plants in Arizona, raised US$1.1bn on Wednesday from what is likely to prove the first of many bond deals.
Proceeds from the senior secured bond will refinance a portion of the US$14.25bn of senior credit facilities used to finance Brookfield's contribution to the joint venture with Intel. Foundry JV is also selling a private placement of notes to help repay the loans.
The joint venture owns and will operate two semiconductor plants in Arizona that are under construction and expected to cost close to US$30bn. Brookfield owns 49% of the chip venture through Foundry JV Holdco and Intel manages its 51% via Arizona Fab HoldCo.
The collaboration – announced in August as a novel way to finance US foundries – also takes advantage of tax credits for semiconductor manufacturing made available by US President Joe Biden's Chips and Science Act, signed into law the same month.
Intel has signalled it would plough cash into chip factories as part of its capital-intensive expansion plans. Intel raised US$11bn from the US corporate bond market in February.
Chipping away
The 144A-for-life bond offering will establish a more permanent capital structure for the unit and term out its floating-rate debt. Analysts expect further bond deals to come from the Brookfield unit as it refinances the loans, comprising five and seven-year term loans and a revolving credit facility.
Foundry JV could face some refinancing risk if Intel's credit spreads widen, said Moody's, making the cost of future issuance more expensive. As Foundry JV's success and financial viability is closely linked to Intel's fortunes, its credit rating is A3/A– from Moody's and S&P, one notch below Intel's rating of A2/A.
"Given the funds are for a semiconductor plant for Intel then the Intel senior curve is an initial reference point," said a lead banker.
Active bookrunners BNP Paribas, BMO Capital Markets, SMBC Nikko, TD Securities and Wells Fargo priced the 10-year note at Treasuries plus 260bp, equivalent to a coupon of 5.875%, and 15bp tighter than initial marketing. The senior secured note will be backed by Brookfield's equity interest in the chip plants. The offering garnered around US$2.6bn of demand, according to the lead banker.
Market participants said the bond appeared cheap relative to its credit rating. Wednesday's three other US high-grade corporate issuers, all Triple B, landed their offerings at tighter spreads.
The pricing also helped to generate performance for investors as the note came in by 15bp to trade at 245bp over Treasuries in the secondary market on Thursday, according to MarketAxess.
"In a [choppy] market like now, there is more leverage to dictate price to an issuer," said a buyside source.
The issuer may have been willing to give up on spread, said the source, given the acceptable coupon achieved for a first-time offering.
Foundry JV Holdco is managed by Brookfield Infrastructure Partners, an affiliate of Brookfield Asset Management. Brookfield holds a 31% stake in Brookfield Infrastructure Partners. Brookfield declined to comment.