2nd UPDATE: High-Grade Cos Selling Bonds To Hungry Investors
18 February 2009 - 9:41AM
Dow Jones News
The corporate bond market caught a huge gust of wind in its
sails on Tuesday, as companies lined up to raise financing for
everything from funding acquisitions to buying back stock.
Four companies - DuPont Co. (DD), Union Pacific Corp. (UNP),
Coca Cola Enterprises Inc. (CCE) and Honeywell International Inc.
(HON) - raised a total of $3.75 billion in the investment-grade
market Tuesday.
Meanwhile, Swiss pharmaceutical company Roche Holding AG (RHHBY)
is in the market via Roche Holdings Inc., with a four-part bond
offering that market participants expect to total at least $1
billion, but likely far more. That offering is likely to price on
Wednesday.
A $5 billion-plus bond issue isn't inconceivable for
AA-minus-rated Roche, given that BBB+ rated Anheuser-Busch InBev
(ABI.BT), the world's biggest brewer, raised $5 billion in the debt
capital market in early January.
Roche, which is also seeking financing in Europe, is lining up
funds for its approximate $40 billion cost of acquiring the
outstanding 44% stake in U.S. biotech company Genentech Inc. (DNA),
in which it already holds a 56% interest.
While Roche wouldn't comment on specifics of the upcoming
transactions, a spokeswoman did say that "the company is confident
that we can raise the financing needed to complete the combination
of Roche and Genentech."
Meanwhile, Honeywell sold a $1.5 billion two-part offering,
including $900 million of 10-year bonds and $600 million of
five-year notes. Atlanta-based Coca-Cola Enterprises sold a
combined $600 million in debt and chemical maker DuPont sold $900
million of senior notes, also in two parts. Transportation company
Union Pacific raised funds to partially fund its share repurchase
program.
Companies are hurriedly tapping the market in order to obtain
financing while the climate remains issuer friendly - combining low
rates with heavy demand.
"Today's action will go toward general corporate purposes as we
take advantage of the current attractive rates," said Anthony R.
Farina, DuPont's director of global public affairs.
Some investors spurned by the plunge in stock prices have turned
their backs on equities and are finding an alternative in the debt
markets, where returns are exponentially more promising than those
in the stock market.
"The bond market has become a more viable investment option than
the stock market," according to Bill Larkin, fixed-income portfolio
manager at Cabot Money Management.
Larkin added that doubts about the government's rescue package
and bailout plan have caused a slide in stock prices, and portfolio
managers have moved away from equities and toward bonds. "Money is
looking for a safe place to go, and higher-quality corporates
outside of banks and finance are benefitting from that."
Last week, $15 billion of fresh corporate debt was snapped up,
confirming that the corporate bond market is very much open for
business and that cash-heavy buyers are clamoring for more.
The corporate bond sector has recently outperformed other areas
of the credit markets and is currently providing a cushy issuing
environment for sellers via low Treasury yields amid heavy investor
demand.
Moody's Investors Service's capital markets research group said
Tuesday they expect U.S. corporate bond issuance to increase by 7%
in 2009, propelled by a successful FDIC-backed short-term issuing
program and attractive financing costs for borrowers.
So while companies that were shut out of the new-issue market
just a short while ago are now able to obtain financing at
reasonable cost, investors are right behind scrambling to get a
piece of the action.
With diversification key, money managers are also benefitting
from some slight competition.
The $750 million Union Pacific deal included a change-of-control
provision, which allows bondholders the option of selling back
their bonds at a premium to the company in the event of a takeover
or sale.
In late 2006 and early 2007, bond buyers demanded covenants be
included in the language of bond contracts, offering holders
protection against the biggest threats back then - leveraged
buyouts and ratings downgrades. But during the current issuing
frenzy, covenants are being considered more of a bonus than a
necessity.
"That's a pendulum that swings both ways," Larkin said. "They're
added to sweeten the deal. The company is adding tidbits to make it
more attractive and get my attention." Larkin said the provisions
put a positive twist on standout issues in a seemingly competitive
market.
-By Kellie Geressy, Dow Jones Newswires; 201-938-2050;
kellie.geressy@dowjones.com
(Carol Dean and Michael Aneiro contributed to this report.)