Capital Markets

With Fed Jump-start, Bond Market Warms

Corporates look a little better, as Disney, Safeway, and Kraft can attest. Among latest offerings with government backing count PNC, Keycorp, John ...
Stephen TaubDecember 18, 2008

The market for new corporate bond issues continues to warm up, although issuers still are mostly restricted to A-rated and better credit. And even those companies — most recently Walt Disney Co., Safeway Inc., and Kraft Foods — still must pay a hefty premium to Treasuries to get a deal done.

The federal government’s guarantee program for certain financial issuers has is jump-starting this market, as those anointed issuers are able to pay much smaller premiums to Treasuries to bring their paper to market.

PNC Funding Corp., a unit of PNC Financial Services Group, for example has sold $2.9 billion of three-part FDIC-guaranteed notes under the Temporary Liquidity Guarantee Program (TLGP), according to Reuters. Its 3 1/2-year notes — the longest issue of the three issues — were priced to yield 2.335 percent, just 133.2 basis points over comparable Treasuries. The issues were rated Aaa by Moody’s, and Triple-A by both S&P and Fitch.

And KeyCorp sold $250 million in two-year FDIC-guaranteed senior medium-term floating-rate notes under the TLGP, according Reuters. The coupon was priced at 60 basis points over the one-year Libor rate.

On Tuesday, John Deere Capital Corp., a unit of Deere & Co., sold $2 billion in FDIC-guaranteed notes. They were priced to yield 2.945 percent, which worked out to 184.9 basis points more than Treasuries. The issue was rated Aaa by Moody’s and AAA by S&P.

Sovereign Bancorp Inc. also sold $250 million of 3.5-year FDIC-guaranteed notes late Tuesday under the TLGP. Rated Aaa by Moody’s and Triple-A by both S&P and Fitch, they were priced at 169.8 points over Treasuries.

Goldman Sachs late Tuesday sold $600 million of one-year guaranteed notes.

And Bank of America Corp. on Monday added $1.5 billion to its existing 3.125 percent FDIC-guaranteed global TLGP notes due June 2012, according to Reuters. The total amount of the notes outstanding is now $8.25 billion.

Other new issues this week not backed by the government came from Walt Disney, which Wednesday sold $1 billion in five-year notes.

To underscore the difference between guaranteed and non-guaranteed paper, the entertainment company paid investors 337.5 basis points over Treasuries for a yield of 4.722 percent even though the paper was rated A2 by Moody’s and Single-A by S&P.

And supermarket operator Safeway sold $500 million in five-year senior notes, according to Reuters.

They were priced at 512.5 basis points over Treasuries. However, the issue was rated Baa2 by Moody’s and Triple-B by S&P, one of the only non-A-rated issues to come to market in weeks.

Earlier this week, Kraft sold $500 million in five-year notes, Kinder Morgan sold $500 million in 10-year senior notes, and Kansas City Southern sold $190 million in five-year notes.