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What, Me Register?

More companies are tapping the nonregistered debt market.
Eric Laursen, CFO Magazine
June 25, 2007

Looking to issue debt? Why bother filing with the Securities and Exchange Commission when, like Time Warner Cable, Alcoa, and Siemens, you can skip the registration process — and save money?

About $52 billion of nonregistered debt was issued in the United States last year under the SEC's Rule 144A, which permits companies to raise capital from "qualified institutional buyers" without registration or GAAP compliance, says Tom Murphy of River- Source Investments in Minneapolis. That's up from $39.5 billion in 2004. And while that's still minor compared with total public bond issuance of $430.7 billion, "the underwriters say they can sell two to three times current levels," he adds.

The rigors of Sarbanes-Oxley are among the principal reasons companies are tapping the nonregistered debt market. But there are others. The market has matured over the past five years, improving investor confidence and prompting a drop in yield spreads versus publicly registered U.S. Treasuries and corporate bonds. Moreover, whatever disadvantages companies used to face for avoiding the SEC — principally, a perception of a lack of liquidity and lower credit quality — appear to have dissipated.

In response, the companies issuing 144A debt have rapidly changed from smaller, non-U.S. firms with lower credit quality to large, publicly traded companies. The reason? The modest yield differential: 5.65 percent (yield to worst) for investment-grade issuers, compared with 5.63 percent for U.S. corporate debt, according to Lehman Brothers. In April, for example, Time-Warner Cable completed a $5 billion offering of 5-, 10-, and 30-year notes paying from 5.4 percent to 6.6 percent. Especially active have been export-oriented foreign issuers that hope to expand their investor base but still want to bypass Sarbox, says Murphy.

Take That, Sarbox
Cos. issuing the largest 144A offerings (combined) so far this yr.
Company Market Value
Time-Warner Cable $5 billion
Alcoa $1.4 billion
TNK-BP Finance $1.3 billion
Woori Bank $999.5 million
News America $977 million
Source: Lehman Brothers