Spanish Bond Issue Starts Foreign Flood

Here comes the foreign telecom bond deluge.

Madrid-based Telefonica de Espana’s sale of $5.86 billion of bonds Thursday in the U.S. market was just the first of many offerings expected soon from cash-hungry European telecommunications companies.

The companies are in need of capital as they spend billions at auction for mobile wireless licenses in Europe.

Analysts expect European telecom companies to sell up to $50 billion of bonds, mainly in the United States, in coming months.

So far, investors seem hungry enough to handle all of the bonds, and more.

Telefonica’s issue attracted about $12 billion in bids, traders said.

“Telefonica was able to take advantage of what we see as a very healthy market,” said Randy Snook, managing director and head of investment-grade bond syndication for Goldman Sachs & Co., one of three lead managers for the bond sale.

The newness of the Telefonica name, the size of its sale, and its better-than-average credit profile among European telecoms almost made its bonds a “must-own,” some investors said.

Indeed, the yields Telefonica offered were nearly one-tenth of a percentage point below what investors had expected.

Telefonica’s sale, conducted by its Telefonica Europe BV unit, included $1.25 billion of five-year notes yielding 7.36%. It also included $2.5 billion of 10-year notes yielding 7.80%.

Telefonica’s credit ratings are slightly higher than those of its typical peer.

Credit rating agency Moody’s Investors Service rates the firm’s senior debt “A2,” its sixth-highest investment grade.

Standard & Poor’s rates the firm “A-plus,” roughly one notch higher.

Other European telecom giants expected to float major bond issues soon include British Telecommunications, France Telecom and Amsterdam-based Royal KPN.