Verizon’s Big Deal Financing Moves Quickly, as Debt Markets Remain Open

Verizon Communications’ blockbuster deal to take full control of its wireless unit may seem dauntingly large. But for the two banks leading the arrangement of its $61 billion financing, it’s possible to pull off.

Even after Verizon announced its $130 billion transaction, the price of its bonds moved only a few basis points. And credit ratings agencies quickly announced that they were downgrading the telecommunications giant by only one notch, keeping the company at investment grade.

That’s what both Verizon and its lead financing banks, JPMorgan Chase and Morgan Stanley, had hoped.

The pace of syndicating the initial bridge loan, provided by the two banks alongside Bank of America and Barclays, to other firms is moving quickly, according to people briefed on the matter. It will eventually be replaced with a $49 billion bond offering and $14 billion worth of loans.

Verizon’s deal highlights what bankers describe as the continued healthiness of the debt markets. About $657.7 billion worth of investment-grade corporate debt has been issued so far this year, just 3.2 percent below the 20-year high mark set in 2007, according to data from Thomson Reuters.

And the average spread of investment-grade corporate bonds, or the extra yield that they offer compared to Treasurys, was about 1.19 percent for the third quarter. (The 10-year Treasury yield is about 2.86 percent right now.)

Corporate boards appear to be gaining more confidence, and that companies are more willing to borrow money.

“Corporate borrowers are seeing that the money is really there,” Andy O’Brien, JPMorgan’s co-head of global debt capital markets, said in a telephone interview.

Verizon has made no secret of the importance of cheap debt to getting the Vodafone deal done now, and taking advantage before the Federal Reserve potentially begins raising rates. “The capital markets environment is favorable,” Lowell McAdam, Verizon’s chief executive, told analysts on a conference call on Tuesday.

JPMorgan and Morgan Stanley long believed that raising over $60 billion in the debt markets, surpassing the roughly $50 billion that InBev took out to buy Anheuser-Busch in 2008, was possible.

The two firms were well-positioned to make such a pronouncement. JPMorgan currently tops the list of investment-grade corporate debt bookrunners, having arranged 294 offerings worth $94.5 billion so far this year, according to Thomson Reuters.

And Morgan Stanley ranks fourth, having arranged 189 deals worth $60.9 billion.

At a meeting with senior Verizon executives around late June, a JPMorgan team led by Jamie Dimon, the firm’s chief executive, insisted that the necessary debt financing was out there, according to a person briefed on the matter.

Debt investors still have a strong interest in high-quality bonds. And banks are flush with cash and interested in buying up pieces of loans issued by companies with strong credit ratings.

“We’re in an environment where rates are still incredibly low. Yes, they’re creeping up, but they’re still historically low,” Mr. O’Brien said. “And banks are still liquid right now.”