UPDATE: Corporate-Bond Issuance Is 2011's 3rd Busiest Day
08 November 2011 - 10:03AM
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
the combined tally of disclosed corporate-bond sales reaching
$20.75 billion.
Nearly $18 billion of those deals were on track to price in
Monday's session--$16 billion from investment-grade companies and
$2 billion from speculative-grade, or junk, bond issuers--putting
the day on track to be the third busiest for combined corporate
issuance so far this year, according to data provider Dealogic.
Leading the charge on the high-grade side were funding units of
Israeli drug maker Teva Pharmaceutical Industries Ltd. (TEVA,
TEVA.TV), with $5 billion of new debt and proceeds earmarked for
paying down debt used to close on its recent acquisition of
Cephalon Inc.; biotechnology company Amgen Inc. (AMGN), which was
marketing $6 billion in new three-, five-, 10- and 30-year debt to
fund a tender offer for $5 billion of its own shares; and
UnitedHealth Group Inc. (UNH), with a $1.5 billion deal.
In the high-yield market was coal giant Peabody Energy Corp.
(BTU), with a $2.75 billion deal slated to price Tuesday to help
fund its interests in Macarthur Coal Ltd. (MCC.AU), and WPX Energy
Inc., with a $1.5 billion deal partly to finance a special payment
to its parent, Williams Cos. (WMB), expected to price later this
session.
Pressure on Italian Prime Minister Silvio Berlusconi to resign
and expectations for a more-unified Greek government helped to lay
the foundations for what promised to be a strong day for corporate
issuance.
"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," said Dave Sekera, a bond strategist
at research company Morningstar Inc.
Friday's deals, including a $2 billion issue from Dow Chemical
Co. (DOW), were well received amid pent-up demand and didn't lead
to big new-issue concessions, under which companies have to 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.
Also in the market Monday were Newcrest Finance Property Ltd., a
unit of Newcrest Mining Ltd. (NCM.AU, NCMGY), with $1 billion of
10- and 30-year bonds; Canadian National Railway (CNI, CNR.T), with
$700 million in five- and 10-year bonds; and Zimmer Holdings Inc.
(ZMH), with $550 million in three- and 10-year debt.
Separately, Dr Pepper Snapple Group Inc. (DPS) sold $500 million
in seven- and 10-year bonds to retire 1.7% notes maturing Dec. 21;
Philip Morris International Inc. (PMI) was in the market with a
benchmark offering and KKR Finance was marketing $225 million of
8.375% bonds that, with a greenshoe option--allowing underwriters
to increase the amount of securities sold on demand--will take the
deal to $250 million.
Sekera said the deal from Dr Pepper should be "well
oversubscribed," citing the "strong bid in the market for
high-quality, defensive names."
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%, this 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
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