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Investors scoop up Oracle bonds

Reuters/ AFR | July 10, 2013
Bond investors gobbled up a new issue Tuesday from software giant Oracle, which jumped into the market at a time when many borrowers have been worried about a spike in interest rates.

Bond investors gobbled up a new issue Tuesday from software giant Oracle, which jumped into the market at a time when many borrowers have been worried about a spike in interest rates.

The company attracted a staggering $US13 billion in orders for the $US3 billion deal, in a sign that investors are willing to get back to business after an extended drought in issuance.

Oracle was one of five deals that launched in the US primary market on Tuesday after the Treasury rates, on which borrowing costs are based, ebbed away from a near two-year high.

The transaction will help Oracle fund a $US12 billion addition to its stock buy-back program that was announced last month. HSBC, Bank of America Merrill Lynch and Credit Suisse were joint books.

But to make sure it drew the full attention of investors who have insisted on better returns in the current climate, Oracle put an eye-popping new issue concession on the table when it first announced the deal.

The California-based company came out with initial price thoughts of 110 basis points and 125 basis points over Treasuries, respectively, for the $US1.5 billion of 5.5-year and $US1 billion of 10-year notes.

That marked an extra 24 basis points-26 basis points over where its outstanding secondary bonds were being quoted in the secondary market - an extraordinary amount for such a highly-sought after, quality name.

Those levels attracted vast interest from investors, even though the two tranches launched at T+95 basis points and T+110 basis points - smaller new issue concessions of 15 basis points and 9 basis points.

Oracle is also offering a $US500 millions 5.5-year floating-rate note at the equivalent price of the fixed-rate tranche, but spread over Libor.

"Oracle came out with a very nice concession, at least at the initial price thoughts stage," said one investor who asked not to be named.

"While they took a lot of that away [by the time the deal was to price], you don't often see a name like this offering anything."

The company garnered $US1 billion of orders for the five-year floater, $US5.25 billion for the five-year fixed-rate notes and $US6.75 billion for the 10-year fixed-rate notes, according to sources.

The deal drew comparisons to the record $US17 billion bond offering from Apple in late April, which was also used to put cash back in the pockets of shareholders.

The Apple trade, the largest corporate bond in history, priced at a weighted average cost of under 2 per cent - a steal compared to the massive corporate tax Apple would have had to pay to repatriate offshore cash for funding its capital return program.

 

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