Last week, Verizon (NYSE:VZ) entered the record books by raising $49 billion from the debt capital market to partially fund its $130 billion acquisition of Vodafone’s stake in their wireless joint venture.  The sheer size of the debt issue can be gauged from the fact that this deal is bigger than the next three largest debt issuance deals put together.  Clearly, Verizon had to assemble a strong force of debt underwriters to pull off a deal so big and that too in so little time. And it really left no stone unturned – employing no less than 13 banks to rope in investors from around the globe.
The banks were rewarded handsomely for playing their part in the deal. As a rule of thumb, banks normally earn a lower revenue per dollar underwritten as the deal size increases. But the Verizon deal bucked this trend with the banks making 0.54% of the value of funds raised as fees compared to the average figure of 0.49% for the year.  The four lead underwriters for the deal – Barclays (NYSE:BCS), Bank of America (NYSE:BAC), Morgan Stanley (NYSE:MS) and JPMorgan (NYSE:JPM) - will pocket a lion’s share of the $265.3 million in fees Verizon is offering to all the banks.
Eager to raise the required debt for financing its acquisition deal at the earliest, Verizon was quite generous with its bonds – offering a significant premium to raise debt before the Fed’s anticipated tapering announcement pushed interest rates north. Investors who have been starved for good returns on their investments in this prolonged low-interest-rate environment were only too happy to lend their money to Verizon. The fact that the book-keeping process recorded a demand for $100 billion in the bonds from 1,200 investors bear testimony to this.
Although the banks admittedly did not have to work very hard to find investors for Verizon’s bonds, the tight timeline involved is what likely helped them negotiate the higher-than-average fees for the deal. The 13 banks involved in the deal were responsible for a separate chunk of the $49 billion raised, and the actual fee each one of them pocketed should be in proportion to the size of their share.
- The four lead underwriters – Barclays, Bank of America, JPMorgan and Morgan Stanley – each underwrote 15.7% of the deal (for a total of 62.8%). Their share of the total fees would be roughly $41.65 million each (for a total of $166.6 million)
- The seven tier-two underwriters – Citigroup, Credit Suisse, Mizuho Financial, Mitsubishi UFJ, RBC, RBS and Wells Fargo – each underwrote 4.8% of the deal (for a total of 33.6%). Their share of the total fees would be roughly $12.7 million each (for a total of $89.1 million)
- Deutsche Bank and Banco Santander SA underwrote 1.8% of the deal, for roughly $4.8 million each in fees
The deal should boost the size of the global debt capital market for Q3 2013 after the industry shrunk by 6% last quarter in response to the Fed’s decision to begin tapering its asset purchase program (see Banks Face Lower Fees From Smaller Debt Deals In Q2). Barclays has had a notably good year till now, with the strong performance helping its total deal size this time around as represented in the chart below.Notes: