Capital Markets

Debting While the Debting’s Good

Lock of the rate: corporates issuing debt before Greenspan makes next move.
John GoffMarch 25, 2002

With press reports coming out daily that Federal Reserve Chairman Alan Greenspan is going to raise the Fed funds rate this summer, major corporations are scrambling to lock in historically low interest rates while they still can. And it appears fixed-income investors are snapping up this paper the way equity investors raked in tech stocks during the late 1990s.

Case in point: General Electric Capital’s bulked-up bond offering. The captive finance arm of GE issued a whopping $11 billion in global bonds. The GE Cap offering was the second largest bond issue ever by a U.S. company, out-distanced only by WorldCom Inc.’s multi-currency $11.9 billion borrowing last May. The GE global underwriting was also the fourth biggest corporate funding worldwide.

Initially, management at GE Cap had planned to borrow $6 billion from lenders — a sizeable amount by any standard. As it turns out, the captive finance unit received at least $15 billion in bids for its paper, according to Reuters.

The GE Cap offering consisted of three tranches. The company offered $4 billion of three-year, floating-rate notes yielding 0.125 percentage points over the Libor three-month mark. GE Cap also issued $2 billion in five-year notes yielding 5.395 percent, as well as $5 billion in 30-year bonds yielding 6.844 percent.

It’s easy to understand market interest in the offering. GE Capital is a sterling credit, and lenders have been burned of late by big name companies going bust (Global Crossing, Kmart, and Enron, to name three). GE Cap’s debt is rated AAA by Moody’s and Standard & Poor’s. Company management told Reuters it would use the funds for general corporate purposes, including replacing existing debt “in support of asset growth.”

J.P. Morgan, Lehman Brothers Inc. and Salomon Smith Barney were the lead bankers on the mega-underwriting.

But GE Cap isn’t the only company supersizing a bond offering of late. Management at Ford Motor Credit increased its recent global bond offering, adding $2 billion to the company’s existing global notes facility. The captive finance unit added $1 billion to its 6.5 percent notes, which are due in 2007. Ford Motor Credit also added $1 billion to the company’s 7.25 percent notes. In case you’re planning ahead, those notes are due on Oct. 25, 2011.

In addition, CRH America Inc. upped its global deft offering. CRH America, a unit of Dublin, Ireland-based construction materials supplier CRH Plc, issued $1 billion in 10-year global notes. The $1 billion was a third more than CRH management had expected to raise. The paper was priced to yield 6.964 percent, or 170 basis points over comparable Treasurys.

And finally, Constellation Energy Group borrowed $1.8 billion in a three-part debt offering last week. Keeping with our theme: the company had originally planned to raise $1.5 billion. Constellation issued $600 million in five-year notes, $600 million in 10-year notes, and $600 million in 30-year bonds. The three tranches were all rated Baa1 by Moody’s and BBB-plus by S&P.