Positive Europe Sentiment Helps Corporate Bond Issuance
08 November 2011 - 6:06AM
Dow Jones News
Broadly rosier sentiment about Europe's ability to contain its
debt crisis prompted a rash of companies to issue debt Monday, with
their combined tally of corporate bond sales already north of $9.5
billion.
Leading the charge is coal giant Peabody Energy Corp. (BTU),
with a $2.75 billion deal to help fund its interests in Australian
coking-coal mining company Macarthur Coal Ltd. (MCC.AU); WPX Energy
Inc. with a $1.5 billion deal partly to finance a special payment
to its parent, Williams Cos. (WMB); and UnitedHealth Group Inc.
(UNH) with a $1.25 billion deal.
Pressure on Italian prime minister Silvio Berlusconi to resign
and expectations for a more unified Greek government helped to lay
the foundations for what promises to be a strong day for corporate
issuance. "Europe held it together over the weekend," said one debt
syndicate banker, who spoke on the condition of anonymity.
Friday's deals, including a $2 billion issue from Dow Chemical
Co. (DOW), were well received amid pent-up demand and "did not lead
to big new issue concessions," the person added, referring to
companies having pay a premium to entice investors into new debt
deals.
Borrowers have been especially sensitive recently to market
conditions, deciding whether to issue or not based on the severity
of euro-zone headlines, and that led to busy Thursdays in the last
two weeks but a slump early each week.
Companies issued $13.8 billion of bonds on Oct. 27, for example,
and $12.5 billion on the next Thursday, Nov. 3, according to data
provider Dealogic. That made those two days the fourth and seventh
busiest in volume terms for all of 2011.
This Monday arrived with a more positive tone, however. The
investment-grade market "would seem to be benefiting from an
agreement on a national unity government in Greece, despite a
tremendous amount of work ahead of them, and rumors that Berlusconi
will step down," said Adrian Miller, senior vice president at
Miller Tabak Roberts Securities, LLC.
St. Louis-based Peabody is selling 7- and 10-year debt in a sale
marketed to qualified institutional buyers, WPX is selling 5- and
10-year bonds also in a private placement, and UnitedHealth is
selling 5-, 10- and 30-year debt.
Also in the market were three funding units of Israeli drug
maker Teva Pharmaceutical Industries Ltd. (TEVA), with proceeds
earmarked for paying down debt used to close on its recent
acquisition of Cephalon, Inc. (CEPH); biotechnology company Amgen
Inc. (AMGN), which is selling 3-, 5-, 10- and 30-year debt to fund
a tender offer for $5 billion of its own shares; and Philip Morris
International Inc. (PM), which wants to buy back stock and
refinance debt.
Separately, Newcrest Finance Property Ltd., a unit of Newcrest
Mining Ltd. (NCM.AU, NCMGY), is selling $750 million of 10- and
30-year bonds; Canadian National Railway (CNI, CNR.T) is selling
$700 million in 5- and 10-year bonds; Zimmer Holdings Inc. (ZMH) is
selling $550 million in 3- and 10-year debt; and Dr Pepper Snapple
Group Inc. (DPS) is selling a $500 million deal comprising 7- and
10-year bonds to retire 1.7% senior notes maturing Dec. 21.
Dave Sekera, a bond strategist at research company Morningstar
Inc., said in a note Monday that the deal from Dr Pepper should be
"well oversubscribed," citing the "strong bid in the market for
high-quality, defensive names."
"We're always one Europe headline away from the market pulling
back and the window for issuance closing, so companies are better
off coming sooner than later," Sekera added.
The average corporate bond in Morningstar's corporate bond index
is trading with a risk premium of 217 basis points, or 2.17
percentage points, over comparable government debt. With 10-year
government debt now yielding about 2%, that puts the average
nominal interest rate or coupon on corporate bonds in the index
just over 4%.
-By Katy Burne, Dow Jones Newswires; 212-416-3084;
katy.burne@dowjones.com
Macarthur Coal (ASX:MCC)
Historical Stock Chart
From Apr 2024 to May 2024
Macarthur Coal (ASX:MCC)
Historical Stock Chart
From May 2023 to May 2024