What, Me Register?

More companies are tapping the nonregistered debt market.
Eric LaursenJune 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

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

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