A $1.5 billion bond offering by U.S. Bancorp (A1/A+) last Thursday was sold so quickly by co-lead managers Credit Suisse First Boston and Lehman Brothers that it prompted rumors that a single player purchased nearly $1 billion of the deal, an unprecedented size for a corporate bond trade. As Wayne Schmidt, a senior portfolio manager at Advantus Capital Management in Minneapolis puts it: "I got up for coffee after placing an order and about two minutes later I was told the deal was done." He adds that although deals can get placed quickly, "getting it done in 15 minutes is ridiculous." His firm did not
get an allocation. Jim Claire, head of trading at Evergreen Investment Management, would not comment on the deal, but did note that "most deals, even the hottest of the hot, take at least an hour or so before the book closes on you." Syndicate officials at CSFB referred all calls to Lehman Brothers. A Lehman Brothers syndicate official did not return repeated phone calls. Calls to U.S. Bancorp's treasurer were not returned.
The managers began marketing the 63Ž8% notes of '11 at 9:00 am EDT last Thursday at 137 basis points over 10-year Treasuries, and by 9:15 were telling interested clients that orders were being taken on a "subject" basis, implying that the order book was closed. Two buysiders--one a large Southern money manager, the other a Midwest player--related how the bond sales teams at the managers told them that the offering was shut so quickly because one buyer purchased up to $1 billion in bonds.
One large East Coast corporate investor and a long-time holder of U.S. Bancorp bonds said the deal was driven by "reverse inquiry," whereby a buy-sider approaches a dealer and expresses an interest in having a transaction arranged, such as a debt issuance, from a particular issuer. This portfolio manager argued that the notion of a billion-dollar buyer is "ridiculous," saying that the most likely scenario was that "several $200-300 million players"--himself included--bought the deal after negotiations earlier in the week with CSFB or Lehman. He continued that his firm "loves the credit, has a lot of cash, and likes the financial sector in general. The sale was a natural for [CSFB and Lehman]." The bonds were trading in the Street Thursday after the close at 133 basis points off of Treasuries.