Reverse Yankee Bond: IBM’s €8.1bn-equivalent five-tranche bond

IFR Awards 2023
3 min read
Sudip Roy

Euro power

That the euro market has matured into an important source of funding for the world’s biggest corporates is no longer in doubt.

Still, it remains rare that when a US corporate decides to fund in its home currency as well as euros at the same time, it’s the latter market that has the bigger pulling power.

That was exactly the case when blue-chip technology services firm IBM raised €8.1bn-equivalent in late January through tranches in the euro, US dollar and sterling markets.

The €4.25bn offering via four tranches in the single currency, together with a £750m 15-year note, meant IBM only needed to raise US$3.25bn in its home market. It was a great vote of confidence in the euro market after a volatile 2022 in which reverse Yankee issuance was spotty.

A huge rally, which began in late 2022 and spilled over into the first few weeks of 2023, had completely changed the euro market’s dynamics. Global investors were rebalancing their portfolios, shifting their underweight euro positions, and leading to huge demand for bonds denominated in the currency.

Pricing was also in the euro market’s favour compared with its transatlantic rival. That combined with the market’s depth, emboldened IBM (A3/A–) to go big and long.

The issuer targeted four tenors in the euro offering: four, eight, 12 and 20-year notes. They landed through IBM’s US dollar curve by 5bp–10bp after adjusting for the cross-currency swap. Pricing would have been even tighter relative to US dollars if the fundraising in euros had been smaller.

Peak orders on the euro notes exceeded €9.5bn, while books passed £2bn for the sterling bond, with only some attrition after pricing tightened by 20bp–25bp from starting levels. Final books were €7.8bn and £1.9bn.

The final composition of the deal was a €1bn four-year tranche priced at 40bp over swaps, a €1.25bn eight-year at plus 80bp, a €1bn 12-year at plus 95bp and a €1bn 20-year at plus 130bp. The £750m 15-year bond priced at 115bp over Gilts. Overall, it was the biggest investment-grade corporate transaction in Europe in more than 15 months.

With the bulk of the financing exercise taken care of, IBM could squeeze pricing on its US dollar offering, which comprised US$850m three-year, US$1bn five-year, US$750m 10-year and US$650m 30-year bonds. So much so that orders more than halved from their peak to a final amount of US$5.7bn.

The total amount raised was the biggest non-M&A financing in IBM's history.

Barclays, Bank of America, Citigroup, Goldman Sachs, JP Morgan, Mizuho, MUFG and TD Securities were the bookrunners.

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