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Verizon launches record $49 billion bond sale

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(Globalpost/GlobalPost)

Verizon Wednesday launched a record $49 billion bond sale as it gathers financing to buy Vodafone's stake in their Verizon Wireless joint venture, a person familiar with the matter said.

The size of the offering was roughly doubled from initial plans due to "heavy demand" among investors, said the person, adding the bond sale garnered more than $100 billion worth of orders.

A Verizon spokesman said the company could not comment on bond offerings before they close.

The bond sale, which would be the largest corporate bond sale in history if successful, comes as Verizon seeks to finance its $130 billion buyout of British partner Vodafone's 45 percent stake in Verizon Wireless, the largest US wireless provider. The partners announced the deal last week.

The Verizon sale would dwarf Apple's $17 billion bond sale in April, the largest corporate bond sale to date.

"Historically spreads and interest rates are low, said Paul Baudoin, senior vice president of bond trading at DA Davidson. "They are taking advantage of the market conditions to grow the deal."

Baudoin said the deal was timed to take advantage of lower interest rates.

Interest rates have been on the rise as markets expect the Federal Reserve to cut back its massive asset-purchase program this year, perhaps as soon as next week's monetary policy meeting.

Bond yields have already risen considerably in recent months compared with earlier in the year in anticipation of the Fed move.

Under the terms of the offering, Verizon will pay a yield of 5.185 percent on a 10-year bond, 225 basis points above the US 10-year Treasury yield, according to a document on the offering.

Paying more than 5 percent on a 10-year bond is "expensive," said Gregori Volokhine, president of Meeschaert Capital Markets.

Apple paid just 75 basis points above the yield on 10-year US Treasuries earlier this year, Volokhine said.

"Current market conditions aren't as good as they were six months ago" for Verizon, Volokhine added.

"We remain in a low interest rate/low growth environment in which investors value yield and quality, and that is what Verizon offers," said New York investment banker Marshall Sonenshine.

Verizon plans to issue $60.2 billion in common stock to finance the deal and is expected to raise a similar sum in debt.

Verizon has said it aims to pay off the debt as quickly as possible.

Chief financial officer Fran Shammo told a September 3 conference call that the company expected to generate enough free cash flow with the Vodafone purchase to return to its normal debt level and garner its traditional "A-" credit rating "within a reasonable amount of time, somewhere between four and five years."

S&P lowered Verizon's credit rating from "A-" to "BBB+" on news of the deal, saying the increased debt was indicative of a "significant" financial risk profile.

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