Banks set to launch Verizon’s $20 billion bond roadshow

Michael Mackenzie and Vivianne Rodrigues in New York
Adam Jeffery | CNBC

Wall Street on Monday kicks off the roadshow for what could become the biggest corporate debt sale in history as it seeks buyers for Verizon's blockbuster offering of some $20bn in bonds to help fund the $130 billion acquisition of its wireless business.

JPMorgan, Morgan Stanley, Barclays and Bank of America Merrill Lynch are tasked with the job of finding buyers for the investment-grade rated bonds.

But the sale comes at a time when the market for corporate debt is sharply negative for the year and uncertainty hangs over the near-term direction of yields, which move in the opposite direction to prices.

(Read more: Why $130billion Verizon-Vodafone deal makes sense)

As bankers sound out the willingness of money managers, hedge funds, insurers and pension plans for a massive amount of debt, one certainty is that any new offering will come at a cheaper price to that at which Verizon's existing bonds trade.

While a big concession in price will result in a higher yield for Verizon, it is seen as simply the cost of a company seeking to sell a record amount of debt in the US debt markets, exceeding Apple's $17bn sale in April.

Also on the table is an ultra-long dated bond of up to 100 years in maturity, if there is enough demand from investors for such exposure, said people familiar with the deal.

(Read more: Vodafone CEO: We will invest in ourselves )

"As large as this debt deal could become, we are confident the US market can absorb it and anticipate a substantial concession in pricing," said Edward Marrinan, head of macro credit strategy at RBS Securities. "We think institutional bond investors will find room for Verizon bonds, either by selling existing telecom holdings or using spare cash."

Much depends on how investors view the economy and whether interest rates have risen too far ahead of the recovery. A sluggish economy favours buying bonds while faster growth tends to push yields higher.

Some investors see little appeal in buying Verizon's debt and corporate bonds in general, as they expect a further rise in yields.

(Read more: How should Vodafone spend Verizon's $130 billion? )

"People who believe in a gloomy outlook for the economy will buy a credit like that," said a portfolio manager. "We are in the process of exiting credit as the market has peaked."

As Verizon starts to market its bonds and selects the maturity of its benchmark issues, demand for long-dated debt will be important. Less appetite for long-term bonds means the company will have to sell more shorter-term and floating-rate issues.

"I'm sure everything's on the table," said Jason Brady, a portfolio manager at Thornburg Investment Management. "I suspect every kind of tranche will be in the deal . . . three-year fixed and floating rate, five, seven, 10, 30 and 100."

Later in the week, Verizon will start marketing the bonds in Europe, where it is planning to raise a portion of its funding needs in euros and sterling. That raises the stakes for a successful sale of dollar-denominated debt.

"They will make it a truly global jumbo deal," said Mr Marrinan.

Additional reporting by Nicole Bullock.