Capital Markets

Corporate Debt Issues Continue the Recovery

Nine companies — from Amgen to Staples — have announced bond and note offerings since Monday, with a total of more than $14 billion.
Stephen TaubJanuary 14, 2009

Pepsi Bottling Group’s Bottling Group LLC and Campbell Soup Co. became the eighth and ninth companies since Monday to sell bonds and notes — more than $14 billion in all — further illustrating the slow but steady recovery of credit markets.

As a result, this is shaping up to be another active week for corporate bonds, after months of relative inactivity. Last week, companies sold more than $21 billion in corporate debt, making it the busiest week for issuance since May 18, when $33 billion was sold, according to Reuters.

Borrowers are still having to shell out hefty premiums to coax lenders to buy their paper. The only exception this week has been Goldman Sachs Group, because it sold $3.5 billion of 2.5-year notes that were guaranteed under the FDIC’s Temporary Liquidity Guarantee program. So its notes — rated Aaa by Moody’s and Triple-A by Standard & Poor’s — were priced to yield 1.681 percent, just 95.1 basis points over comparable Treasuries.

Otherwise, the spreads on the new issues were quite hefty. The Pepsi operation sold $750 million in 10-year senior unsecured notes, according to IFR, a service of Thomson Reuters, priced to yield 5.203 percent, with a spread of 300 basis points more than Treasuries. Moody’s Investors Service rated them Aa, and Standard & Poor’s rated them Single-A.

Campbell Soup sold $300 million in 10-year notes, with a yield of 4.578 percent.237.5 basis points more than Treasuries, also with an Aa Moody’s rating and Single-A from S&P.

Amgen sold $2 billion in two part senior notes. The biotech giant sold $1 billion of 10-year notes, priced to yield 5.729 percent, or 345 points over Treasuries. It also sold $1 billion in 30-year bonds, priced to yield 6.435 percent, also 345 points over the benchmark, according to the wire service. The issues were rated A3 by Moody’s and Single-A by S&P, which said its rating “reflects the strength of the company’s high-margin product portfolio and conservative financial policies, offset by its still relatively narrow drug portfolio.”

FedEx Corp. sold $1 billion of senior notes in two parts. It sold $250 million of five-year notes priced to yield 7.375 percent, or 593.9 basis points over comparable Treasuries, and $750 million of 10-year notes, priced to yield 8 percent, or 570.6 points over Treasuries. The issues were rated Baa2/Triple-B.

McDonald’s Corp. sold $750 million in a two-part deal. It sold $400 million of 10-year notes and $350 million of 390-year bonds, both priced at 270 points over Treasuries. They were rated A3 by Moody’s and Single-A by S&P.

Staples Inc. sold $1.5 billion of five-year senior notes, at a 9.75 percent coupon, according to the company. It said it plans to use the proceeds to repay in part Staples’ outstanding debt related to its commercial paper program; 2008 credit agreement, which backstops the commercial paper program; and revolving credit facility. S&P assigned a BBB rating. “The ratings on Staples reflect its solid business profile as a leading retailer of office products in North America and strong breadth and scale of its North American and International Delivery segments—further enhanced by the acquisition of Corporate Express,” said S&P credit analyst Mark Salierno.

Growth prospects in Staples’s international business segment is another positive factor, the analyst said. “An increasingly challenging and competitive domestic industry environment, elevated debt levels, and weaker credit metrics following the Corporate Express transaction, in addition to the risks associated with international and domestic expansion, partly offset these strengths,” added Salierno.

“The successful issuance of $1.5 billion to refinance over half of the committed $2.75 billion bridge loan is a very positive step in the successful rebalancing of the Corporate Express acquisition debt,” said Moody’s senior analyst Charlie O’Shea, who assigned the notes a Baa2 rating.

Reed Elsevier Capital sold $1.5 billion in two-part global notes, according to Reuters. The notes are guaranteed by Reed Elsevier Plc and Reed Elsevier NV, the wire service noted. The publishing giant sold $550 million of five-year notes, priced to yield 7.813 percent, and $950 million of 10-year notes, priced to yield 8.684 percent. Both issues were priced at 637.5 points over Treasuries.

Also, Australia’s Macquarie Bank sold $2.5 billion in three-year notes, in a private placement. They were priced to yield 149.9 basis points over comparable Treasuries, according to Reuters.