Intel Issues $7B Bonds to Finance $16.7B Altera Takeover

Intel Inc.INTC recently announced that it is selling bonds worth $7 billion to fund a portion of its $16.7 billion takeover of Altera Corp. ALTR.

Intel's Bond

According to Reuters, Intel plans to sell the bonds in four tranches, ranging in maturities from 5 to 30 years.

Now, market participants had long been expecting this deal. Initially marketed in June to European investors, the company did not announce the deal till yesterday because of market volatility.

Eric Lyons of CreditSights Inc. is of the opinion that the disappointing earnings forecast from Apple AAPL sent technology stocks plummeting. In addition to this, the speculation that Qualcomm QCOM might be headed for a split may have "soured investors' opinions of highly rated tech companies."

However, Intel's terms are sure to attract investors dealing with this turbulent market. Citing a person familiar with the matter, Bloomberg stated that the longest portion, $2 billion in 30-year bonds, may yield 1.85 percentage points more than similar-maturity Treasuries.

In fact, according to Bloomberg, the spread price talk on the 30-year bonds was as much as 2.05 percentage points above the Treasuries initially.

Nicholas Elfner, of Breckinridge Capital Advisors, says that Underwriters have been marketing deals with relatively wide premiums, so that the demand for the debt leads to narrowing of the spreads before the securities price.

The Bloomberg data shows that though the spread is down from initial price talk, it is still above the comparable Intel bonds in the secondary market, as of Tuesday.

Rating

Moody's assigned an A1 rating to Intel's proposed senior unsecured debt with a stable outlook.

Looking Ahead

Intel will help build out Altera's chips built on ARM designs with its advanced process technology. No one thought Intel would aid a competitor's business, but it appears that Altera FPGAs can gain significant market share if it's the first on a technology node. This will also help to keep the fabs full, in turn boosting margins. Intel will also integrate the two companies' technologies to create new product categories in the data center and IoT.

According to Reuters, Intel's decision to wait for calmer market conditions and strong second-quarter results paid off. Investors rushed to take hold of a deal that was not as big as initially expected.

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