UPDATE: IBM Leads Jumbo-Deal Foray Into US Corporate Bond Market
09 May 2012 - 3:32AM
Dow Jones News
Three jumbo-sized high-grade bond deals are hitting the U.S.
debt markets Tuesday as companies seek to participate in the
record-low yield environment.
It's often said that when IBM issues bonds, others follow,
knowing that Big Blue has a knack for achieving record-low yields.
So perhaps it's no coincidence that within a half-hour of
International Business Machines Corp. (IBM) reporting plans to
issue three- and seven-year bonds Tuesday morning, Berkshire
Hathaway (BRKB) and beverage company Diageo (DEO) each disclosed
their own three-part debt issues.
Each is "benchmark"-sized, which typically means at least $500
million per tranche. They could be considerably larger, pending
market appetite. Coupled with four smaller deals, at least $6.05
billion should price today.
"It's a high-quality day in the market," said Susanna Gibbons,
head of fixed-income credit research at RBC Global Asset
Management.
The flurry of jumbo deals comes at a time of record-low yields
for highly-rated bonds. The widely watched Barclays U.S.
Investment-Grade Index finished last week at 3.25%, the lowest
level in data going back almost four decades. On Monday it ticked
up to 3.26%, the second-lowest rate on record.
Last week, data provider Dealogic counted $24.6 billion in
high-rated-bond issuance, marking the fifth-busiest week of 2012.
But Gibbons said she isn't concerned about the market becoming
saturated.
Even after near-record volume in the first quarter, net issuance
is growing minimally as the amount of principal returning to
investors mostly offsets new issuance, she noted, while inflows
from mutual funds continue to indicate strong demand.
"Most deals really have had no problem getting done, and in
particular higher-quality paper is being snapped up," she said.
When IBM last issued three-year bonds in February, it achieved
an all-time low coupon of 0.55%, according to Dealogic. Those bonds
last traded Monday at a spread over Treasurys of 0.37 percentage
point, yielding 0.737%, according to MarketAxess.
IBM's debt is rated Aa3 by Moody's Investors Service and A-plus
from Standard & Poor's and Fitch Ratings.
Berkshire and Diageo, each issuing through financing
subsidiaries, are both issuing five-, 10-, and 30-year bonds. The
Berkshire bonds are rated Aa2 by Moody's and AA-plus by Fitch,
while Diageo's bonds are rated A3 by Moody's and A-minus by S&P
and Fitch.
Berkshire is offering 0.85, 1.25, and 1.45 percentage points
over respective Treasury rates, according to launch terms. It is
raising funds to retire up to $700 million of 4.75% coupon notes
due this year and to replace $1 billion of 4% notes that matured
last month.
IBM and Diageo are each borrowing for general corporate
purposes. According to Standard & Poor's LCD, this is Diageo's
first U.S. bond deal since 2010.
Among smaller issues in Tuesday's market, Penske Truck Leasing
Co. (PTL.XX) is readying a $750 million deal of three- and
five-year bonds, and Southern Co. unit Georgia Power said it would
sell $500 million in a two-part deal.
Telecommunications equipment provider Motorola Solutions (MSI)
is also selling $500 million of 10-year bonds in its first offering
since 2007.
All six deals are expected to price Tuesday.
Earlier in the session, Malaysia's RHB Bank Berhad sold $300
million of 3.25% bonds due 2017, pricing them at 2.25 percentage
points over Treasurys.
-By Patrick McGee, Dow Jones Newswires; 212-416-2382;
patrick.mcgee@dowjones.com
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