Vodafone Postpones a Bond Sale

British telecommunications firm Vodafone Group PLC postponed a U.S. debt sale on Monday, the latest sign of weakness in the bond market amid worries about the pace of economic growth.

Vodafone was looking to sell bonds that mature in 30 years, though no size had been set for the deal. It could still decide to proceed with a bond sale at a later date. A company spokesman declined to comment.

Analysts said investors were concerned Vodafone, which bought Spanish telecom firm Grupo Corporativo Ono SA last year and has been downgraded by credit-rating firms over the past 18 months, could seek to make more acquisitions and take on even more debt, hurting the value of the company's outstanding bonds. That concern was likely increased by recent news of other large acquisitions, such as the $155 billion deal announced Monday to combine Pfizer Inc. with Allergan PLC.

Vodafone on Monday offered to increase the interest rate on its new bonds should the company be downgraded below investment grade, an unusual step given how easy it has been for companies to sell new bonds in recent years. Firms have been selling bonds at a record pace as investors, seeking interest rates higher than what was available on low-risk government debt, piled into corporate bonds.

Vodafone's new bonds were expected to be rated in the triple-B area, the lowest category of investment grade. The bond was expected to yield about 2.50 percentage points more than benchmark U.S. Treasurys. An outstanding 2043 bond from Vodafone traded Monday at about 86 cents on the dollar, down from 88.1 cents last week, according to MarketAxess.

Some analysts have started questioning the health of the corporate debt market, saying companies could have problems repaying debts if the global economy slows down. Defaults are expected to increase in the coming months and more companies are getting downgraded by credit-rating firms.

Last week, Veritas postponed a debt deal financing the firm's leveraged buyout by private-equity firm Carlyle Group LP, which was buying Veritas from cybersecurity firm Symantec Corp., according to S&P Capital IQ LCD. Some corporate-bond sales were also postponed at the end of September during turmoil in financial markets.

"It is a little bit of a warning sign," said Brian Kloss, portfolio manager at Brandywine Global Investment Management. "You need to be cautious at this point." Mr. Kloss said his firm wasn't considering the Vodafone deal because of heightened mergers-and-acquisitions activity in the telecom sector.

Still, some analysts said investors' concerns were limited to Vodafone and didn't reflect broader worries. Other companies successfully sold bonds on Monday, including Lloyds Banking Group PLC and MetLife Inc., indicating that debt markets remain open for new bond deals.

Write to Mike Cherney at [e-mail]

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November 23, 2015 18:05 ET (23:05 GMT)

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