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.