Synopsys brings first jumbo IG bond of 2025
Synopsys is leading the wave of March supply with the US high-grade market's first jumbo corporate transaction this year, which will help finance the borrower's proposed US$35bn cash-and-stock acquisition of engineering software firm Ansys.
The US$10bn Baa1/BBB rated offering from the US semiconductor design company comprises US$1bn two-year, US$1bn three-year, US$2bn five-year, US$1.5bn seven-year, US$2.4bn 10-year and US$2.1bn 30-year senior unsecured notes.
After holding fixed-income investor calls on Friday, active bookrunners HSBC, Bank of America and JP Morgan launched the SEC-registered trade on Monday at a range of US Treasuries plus 60bp to 125bp across the tranches, tightening 20bp–25bp from the mid-point of IPTs.
The California-based company is funding the US$19bn cash portion of the deal, which was announced in January 2024, with new debt and existing balance sheet liquidity. Aside from the bonds, Synopsys is also leaning on bank loans to finance the deal, signing a US$4.3bn term loan in February.
Though market conditions remain receptive to new supply, despite recent widening of high-grade credit spreads, issuers like Synopsys are expected to pay up on M&A offerings to get the necessary size from the market.
But a DCM banker away from the deal said the ultimate concessions are unlikely to be much larger than what most transactions in the high-grade market are currently paying. For example, US investment-grade issuers paid an average of 3.7bp concessions over the secondary market last week, according to IFR data.
"Obviously, in the context of very large M&A, you're not getting zero to five [basis points] new-issue concessions, like we're getting for regular-way financing," the banker said. "But I don't know if that number is 10bp to 20bp. It's certainly not 40bp."
The new-issue market is also supported by strong demand. BMO analysts noted investors would have plenty of cash to put to work this month, estimating US$130bn of bonds to come due in March. They said many of these maturing bonds are five-year securities issued during the early days of the Covid-19 pandemic when the Federal Reserve cut its benchmark interest rate to rock bottom.
Welcome size
Synopsys's transaction is bringing some welcome size to investment-grade investors who have had few opportunities to participate in large debt offerings. Despite a busy start to 2025, there have been no high-grade corporate bonds surpassing US$10bn of size so far this year.
The lack of large M&A-related issuance comes amid diminished Wall Street dealmaking. Goldman Sachs analysts noted last Thursday that recent policy uncertainty had inhibited M&A activity, frustrating earlier hopes that a pro-business agenda from the Trump administration would bring a wave of corporate tie-ups. M&A activity in North America was down 30% year-over-year as of February 27, according to LSEG data.
Synopsys executives in a February earnings call said the company is making good progress on receiving the necessary regulatory approvals for the planned purchase, which is anticipated to close in the first half of 2025.
Nevertheless, the offering includes customary language included in M&A fundraisings that requires the issuer to redeem the short-dated bonds at 101 if the merger falls through. The new 10 and 30-year notes will stay on the balance sheet for general corporate purposes.
Today's offering is also the first time that Synopsys has tapped the high-grade bond market, according to IFR data.
"The issuance of over $14 billion in new debt marks a significant departure from the historically very conservative financial policies of Synopsys," said Moody's in a February 27 note.
The company benefits from significant cash flows and an asset-light business model in the semiconductor industry. For the fiscal year ending in November 2, Synopsys reported US$1.4bn of operating cash flow.