Thursday, 19 July 2018

UPDATE – Intel's US$7bn four-parter gets US$20bn in demand

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Intel is on track to price a US$7bn bond on Wednesday to help finance its acquisition of chipmaker Altera after attracting more than US$20bn in investor demand.

(Rewrites throughout, adds more details)

The deal, split across four tranches ranging in maturities from five to 30 years, had been long-expected by market participants. Initially marketed in June to European investors, the company held off announcing the deal until today because of market volatility.

Its decision to wait for calmer conditions, and the release of strong second quarter results, clearly paid off as investors rushed to grab a deal that was smaller than initially expected.

Initial new issue concessions – in the range of 20bp–30bp – were a strong selling point in the wake of recent volatility that sent spreads on high-grade bonds to their widest in two years.

Lead managers Bank of America Merrill Lynch and Wells Fargo, were able to pull in pricing from any where between 15bp–25bp from start to finish. That left new issue concession of anywhere between flat to 15bp depending on the tranche.

Even then, investors said they were getting a decent premium to both Intel’s own curve, which had widened considerably in anticipation of this deal, and its competitors.

“The big story is that we are at two-year wides on spreads, and a lot of that has been driven by these large issues coming to market and repricing,” said Matt Duch, portfolio manager, taxable fixed-income at Calvert Investments.

“But even though spreads on existing holdings are widening, the new issues are coming at decent premiums.”

Michael Dimler, senior credit analyst at Morningstar put fair value on an Intel five-year at Treasuries plus 70bp, 90bp on a seven-year, 110bp on a 10-year and 175bp on a 30-year bond.

“(This) reflects our views that Intel should remain well-positioned in its rating category despite the acquisition and that management will pull back on share repurchases to rebuild cash to restore net debt to zero,” he said.

Intel’s bond also looked cheap against peers, especially the long end where the 10- and 30-year were launched at 140bp and 185bp.

That compares to Apple (Aa1/AA+) and Oracle (A1/AA-) whose 2025s were trading at G-spreads of 100bp and 115bp, respectively, while their 2045s were being spotted at Treasuries plus 138bp and 153bp.

Demand was also high because leads indicated to investors earlier today that the company is looking to raise an equivalent of US$7bn–$8bn in total.

That was less than the US$8bn–$10bn that some in the market had initially expected, with the remainder likely to be raised in something other than dollars.

Intel, rated A1/A+/A+, hired Barclays and JP Morgan to hold a European roadshow in June ahead of a potential euro and/or sterling issue, but held off on the deal as markets turned choppy.

Following are details on each tranche:

TenorInitial GuidanceGuidanceLaunch
Five-yearT+100bp areaT+85bp areaUS$1.75bn at T+80bp
Seven-yearT+130bp areaT+110bp areaUS$1bn at T+105bp
10-yearT+155bp areaT+145bp areaUS$2.25bn at T+140bp
30-yearT+205bp areaT+190bp areaUS$2bn at T+185bp
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