Capital Markets

Billion-dollar Bond Issues Back, but CP Slides

ConocoPhillips, General Mills, Hess, and Goldman Sachs all go to market on Thursday. Commercial paper has third straight rough week, losing $98.8b.
Stephen TaubJanuary 29, 2009

At least four major companies Thursday took billion-dollar debt deals to market, underscoring growing investor appetite for new issues of corporate debt.

The daily drumbeat of debt offerings — pounded this day by ConocoPhillips, General Mills, Hess Corp., and Goldman Sachs ­— also is a reminder that there are some positive developments in the otherwise dismal global economy. The next big turn in the corporate bond market, however, will be when spreads come way down to more normal levels.

Meanwhile, the commercial paper market continued to lose its recent momentum. The volume of outstanding paper fell by $98.8 billion for the week ended Wednesday, and stood at nearly $1.59 trillion, according to the Federal Reserve. Most of the decline occurred in the financial sector. The contraction of the CP market thus has run three weeks now, during which outstanding paper has fallen by about $175 billion — nearly negating the $83.1 billion increase recorded in the first week of January.

In the bond world, by far the largest offering was made by energy giant ConocoPhillips, trying to raise $6 billion in a three-part debt sale. It was looking to sell $1.5 billion of five-year notes, $2.25 billion of 10-year notes and $2.25 billion in 30-year bonds. Reuters said all of the issues are expected to yield 295 basis points over comparable U.S. Treasuries. ConocoPhillips said in a regulatory filing that net proceeds will be used to reduce outstanding commercial paper and for general corporate purposes. As of Dec. 31 it had $6.933 billion of commercial paper outstanding, with a weighted average interest rate of 1.2 percent and a weighted average remaining maturity of approximately 14 days. It also had credit facilities supporting its commercial paper program. Lead managers were Banc of America Securities, Barclays Capital and Credit Suisse.

General Mills sold $1.15 billion in 10-year senior notes. It had initially anticipated selling $1.5 billion of paper, according to news agency. The food company priced the notes to yield 5.661 percent, or 287.5 basis points over comparable Treasuries. The spread was not too rich, given the packaged foods company is rated Baa1 by Moody’s and BBB-plus by Standard & Poor’s.

Hess Corp. launched a $1.25 billion two-part note sale, which included $250 million in five-year notes. The five-year notes are expected to yield 530 basis points over Treasuries, and the $1 billion in 10-year notes are expected to yield 540 points over Treasuries, according to the wire service. The oil producer and refiner said in a regulatory filing that it intends to use the net proceeds from the sale primarily for repayment of revolving credit and short-term debt, working capital and other general corporate purposes. The revolving credit and short-term debt was incurred principally to fund working capital and capital expenditures. As of December 31, the weighted average interest rate on its revolving credit and short-term debt was 2.55 percent and the weighted average maturity was 18 days, according to the preliminary prospectus.

And Goldman Sachs selling $2 billion in 10-year notes, expected to price at 500 basis points over comparable Treasuries.

Meanwhile, Intelsat Subsidiary Holding Company Ltd., a unit of satellite services provider Intelsat Ltd., sold $354 million ($400 million face amount) of six-year senior notes in the private placement market, Reuters reported. Earlier in the week, it was reported that Intelsat hoped to raise $200 million.

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