Capital Markets

Cisco Notes Go for Record $6.5 Billion

The deal was reportedly the largest-ever debut in the investment-grade corporate debt market.
Stephen TaubFebruary 15, 2006

Cisco Systems Inc. said it raised $6.5 billion from the sale of three series of investment-grade notes. The networking-equipment maker reportedly had first sought to raise $5.5 billion from the underwriting.

Thomson Financial said the deal set a record for a debut in the investment-grade corporate debt market, according to Dow Jones. Heavily oversubscribed, the issuance was priced at the expensive end of the levels given when the deal launched, the wire service reported.

The offering consisted of $3 billion in notes that will mature in February 2011 and were priced to yield 5.294 percent, while $3 billion will mature in February 2016 and were priced to yield 5.560 percent. Further, $500 million will mature in February 2009 and will bear interest at an annual rate equal to three-month LIBOR plus eight basis points.

Cisco said it intends to use the net proceeds to fund its purchase of Scientific-Atlanta Inc. and for general corporate purposes. The commercial paper was rated A1 by Moody’s Investors Service and single-A-plus by Standard & Poor’s.

Citigroup Global Markets, J.P. Morgan Chase Securities, Merrill Lynch & Co., and Morgan Stanley served as joint book-runners. Dow Jones noted that the deal’s structure was a carbon copy of Oracle’s $5.75 billion three-part deal priced on January 10. The performance of the software maker’s issue has reportedly been a disappointment in the secondary market.

But the similarity of Oracle’s deal might not bode ill for Cisco’s. An investor who didn’t want to be named told Dow Jones: “Even though they’re both technology titans, the differences between the two are material. Cisco’s ratings are higher, they have a huge market cap, and they’re fresh-faced.”

Also on Tuesday, Amgen priced $5 billion of convertible senior notes, half due in 2011 and half in 2013. The biotech giant stated that it expects to use the net proceeds from the offering and the proceeds of certain warrant transactions to buy roughly $3 billion worth of its common shares. Most of the remaining proceeds will be used to fund convertible note hedge transactions that Amgen expects to enter into with one or more of the first buyers of the notes and/or their affiliates.