Broadcom Inc sold bonds on Friday to repay outstanding debt as the semiconductor giant readies for the transition to 5G wireless networks.
The company issued $11bn of debt in five parts, well above the initial $5bn to $7bn targeted, according to a person with knowledge of the matter. The longest portion of the deal, a 10-year security, yields 2.40 percentage points more than Treasuries, after an initially discussed risk premium of around 2.55 percentage points, said the person, who asked not to be identified because the details are private. The offering drew about $20bn in orders from investors, the person said.
San Jose, California-based Broadcom has transformed itself into one of the world’s largest chipmakers through a string of acquisitions under chief executive officer Hock Tan, most recently its purchase of CA Inc for more than $18bn.
Broadcom is readying for smartphone vendors to add 5G capability to premium devices and buy the chips they need to do so, said Bloomberg Intelligence analyst Woo Jin Ho in a note. The company may look to acquire again soon, wrote Anand Srinivasan, a Bloomberg Intelligence analyst, in a March 22 report.
“Following consummation of the CA purchase, Broadcom’s well-worn deal playbook may now seek software, hardware or semiconductor companies, a wider target list than before,” Srinivasan wrote.
The offering was sold on Friday, which is usually a quiet day for bond sales. Only asset managers known as “qualified institutional buyers” will be eligible to buy the bonds, Broadcom said in a statement. Proceeds are refinancing debt.
CreditSights expects the deal will not impact the company’s gross leverage but sees warning signs on the credit. “Fundamentally, we are still cautious on the near-term cyclical downside risk in the semiconductor business,” said analyst Andy Li in a note on Friday. “Given the company’s history, potential M&A is always a risk, particularly as Broadcom has now expanded its sights beyond just semiconductors.”
Broadcom reported first-quarter profit on March 14 that beat analysts’ estimates. During the earnings call, Tan stood by the company’s forecast for 2019 revenue of $24.5bn, a figure that some Wall Street analysts expected would be tempered. Broadcom’s semiconductor business is an indicator of smartphone demand, with the unit’s biggest customers being Apple Inc and Samsung Electronics Co.
“Looking to the second half, we are confident that semiconductor business will resume very meaningful growth,” said Tan during the call. “Our diversification strategy is working and we are effectively managing the decline in wireless, as well as the broader semiconductor industry headwinds.”
The semiconductor maker is the sixth BBB rated borrower to tap the primary market this week, according to data compiled by Bloomberg News. A dovish Federal Reserve and subsequent fall in Treasury yields have pushed corporate yields lower this year, allowing companies to continue to borrow at a reasonable cost.
Broadcom, with its bankers, was said to have held investor calls on Thursday to market the offering. Bank of America and JPMorgan Chase & Co managed the bond sale, the person familiar with Friday’s transaction said.