Investors Devour Softbank’s $11B+ Notes Offering for OpenAI Investment; Demand at 4x Book Size

SoftBank’s mammoth triple-tranche $10 billion senior unsecured notes and dual-tranche €1 billion senior unsecured notes offering landed with a bang among investors, who touted the offering’s loan to value ratio, or LTV, as well as SoftBank’s executives and ties to OpenAI.

Despite the historic ask, book orders on the Citi-led deal surpassed $40 billion – 4x book size – by midday Sept. 23, according to sources, causing pricing to tighten across all durations. The $1 billion 3.5-year notes offering priced at 8.625%, the $4.5 billion 5.5-year notes at 9.25% and the $4.5 billion 7.5-year notes at 9.75%. Meanwhile, the €500 million four-year tranche priced at 7.125% and the six-year €500 million notes at 8%.

Investors flagged that growing central processing unit demand drove interest in the deal, helping the order book to swell from about $8 billion in commitments last week to $20 billion by Sept. 22 and more than $40 billion by yesterday, Sept. 24.

Investors also highlighted that even with tighter pricing, the deal’s LTV of about 15% to 20% is attractive compared with the mid-8s to high-9s paper in the market. Investors viewed the dollar tranches, which launched with pricing of low 9s on the 3.5-year, mid-9s on the 5.5-year and high 9s on the 7.5-year, as a very flat yield curve.

The sheer size of the offering, and its place in the high-yield index, drew in substantial long-only real-money players and hedge funds, according to sources close. The deal offered U.S. high-yield investors the large exposure to SoftBank and OpenAI, opening up the market to the Japanese conglomerate. Much of the demand came from the U.S. market, sources close noted.

Some viewed the offering as a bet on OpenAI and its initial public offering timeline. Proceeds from the offering will be used to fund SoftBank’s $10 billion payment for the third tranche of its investment in the ChatGPT maker. One investor noted that OpenAI had in recent months been catching up with Anthropic’s profitable business-to-business model and gaining market share, which supported the offering. However, several investors focused their diligence on SoftBank’s credit fundamentals and how the company plans to maintain its LTV and address its other maturities, rather than focusing on expectations for its major holdings, sources noted.

The company is marketing itself off of a 13% LTV ratio on its preferred definition of this metric, and up to 25% if the denominator is adjusted by outstanding margin loans and cash balances. Earlier this week, Octus analysts released a model that allows investors to alter LTV expectations based on the value of SoftBank’s underlying assets, such as its 86.4% stake in chip designer Arm Holdings or its substantial holdings in OpenAI.

SoftBank CEO Masayoshi Son’s track record, which includes achieving outsized gains on Arm Holdings and a stake in Alibaba that was once worth more than $200 billion, were cited as evidence of the company’s upside. While SoftBank’s debt may be more volatile owing to big swings, the bond’s pricing is likely to compensate investors, sources added.

In addition to its CEO, investors praised SoftBank’s management team, saying that the market appreciated how approachable and accessible they were for face-to-face meetings.

Citi was lead left on the offering. Goldman Sachs, JPMorgan and Morgan Stanley acted as joint global coordinators, while HSBC, Mizuho, SMBC, Barclays, Deutsche Bank, Nomura, BNP Paribas, Crédit Agricole, Natixis, Daiwa and Banca IMI acted as joint bookrunners.

Citi declined to comment.