Capital Markets

Rates Fall, Bond Issues Arise

''Most of the issuance we're seeing now is opportunistic,'' noted one observer.
Stephen TaubJuly 9, 2004

A number of companies pounced on an unexpected gift this week: lower interest rates. On the heels of Friday’s disappointing jobs report, Treasury yields slipped somewhat, enticing a number of issuers to trot out new investment-grade debt.

“Most of the issuance we’re seeing now is opportunistic,” Heidi Hu, the head of fixed income at Transamerica Investment Management, told Reuters.

After all, the Federal Reserve did hike short-term interest rates last week, and most market observers expect the central bank to raise rates a number of times over the next few years as the economy strengthens. This would increase the borrowing costs for companies that issue new paper.

In the first two days of this week alone, companies issued about $2.7 billion of new investment-grade debt, including paper from Marsh & McLennan Cos., Canadian National Railway Co., and Pulte Homes Inc.

For example, on Wednesday Marsh & McLennan sold $1.15 billion of bonds in two parts to help finance its $1.9 billion acquisition of Kroll Inc., according to Reuters, citing Matt Bartley, vice president and treasurer the financial services company. Bartley added that the company has no plans to issue more debt this year.

Marsh & McLennan sold $500 million of 3-year floating rate notes at 14 basis points over three-month Libor, and $650 million of 10-year notes at 91 points over comparable Treasurys, according to the report. The size of the deal was increased from an originally planned $800 million.

In the first half of the year, investment-grade corporate debt issuance totaled $327 billion, down from $356 billion in the same period a year ago, according to Reuters, citing Thomson Financial.

4 Powerful Communication Strategies for Your Next Board Meeting