By Patrick McGee
Five highly rated companies sold a combined $12.5 billion of
bonds in the third-busiest session of the year on Thursday.
The spate of deals was led by international mining company
Freeport-McMoRan Copper & Gold Inc. (FCX), which priced a $6.5
billion deal to fund the acquisition of Plains Exploration &
Production Co. (PXP), a purchase announced late last year.
Coca-Cola Co. (KO) placed a $2.5 billion deal, priced in three
parts including five- and 10-year bonds yielding 1.194% and 2.546%,
respectively. Demand was so strong that its two-year floating-rate
tranche will pay investors 0.02 percentage point less than the
three-month London interbank offered rate, or Libor, which is
currently 0.29%. It is just the second company, after Walt Disney
Co. (DIS) on Feb. 12, to sell bonds below the Libor rate this
year.
Floating-rate bonds feature interest payments that reset every
quarter. If interest rates rise this year--as many are
expecting--so do floating-rate bond payments. By contrast, the
interest on fixed-rate bonds is locked in, so if rates rise, the
value of these bonds declines. Bond values move inversely to
yields.
"The fear is that, at some point, when interest rates begin to
rise, investors will feel price depreciation in their portfolio. If
you purchase floating-rate notes, you can alleviate that concern,"
said Jim Barnes, senior fixed-income manager at National Penn
Investors Trust Co.
Dutch lender ING Bank NV sold $1 billion of three-year notes
including floating-rate notes paying 0.95 percentage point over
Libor and fixed-rate bonds yielding 1.445%.
New issuance had dried up in the prior two sessions after
Italy's uncertain election outcome prompted a run to safe-haven
Treasurys. That helped send corporate-bond yields, which closely
follow Treasury yields, falling. They have lost 0.09 percentage
point over the past week, to 2.75%, according to Barclays PLC (BCS,
BARC.LN). The drop in yield, plus a return in risk appetite, made
Thursday an appealing day to sell bonds.
Phoenix-based Freeport-McMoRan's four-part bond deal was the
largest corporate-bond offering since November, when pharmaceutical
company AbbVie Inc. (ABBV) borrowed $14.7 billion. It is also the
company's largest deal ever, surpassing the $6 billion deal it
priced in March 2007, according to Dealogic.
The deal featured $1.5 billion of five-year notes, $1 billion of
seven-year notes, $2 billion of 10-year bonds and $2 billion of
30-year bonds. Yields ranged from 2.337% to 5.481%.
The bonds are expected to be rated Baa3 by Moody's Investors
Service and BBB by Standard & Poor's Ratings Services and Fitch
Ratings.
Also, Canadian telecommunications company Rogers Communications
Inc. (RCI, RCI.A.T, RCI.B.T) borrowed $1 billion in its first U.S.
deal since 2008. It sold $500 million of 10-year bonds yielding
3.018% and $500 million of 30-year bonds yielding 4.558%.
And Ohio-based FirstEnergy Corp. (FE) was on track to borrow $1
billion due in five and 10 years.
Write to Patrick McGee at patrick.mcgee@dowjones.com
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