Capital Markets

Amid Gloom, Six Companies Raise Nearly $17 Billion in Bonds

Fannie Mae, Harley-Davidson, and other companies motor into the bond market.
Stephen TaubFebruary 4, 2009

In the midst of the well-reported economic gloom, the bond market continues to show signs of life. Six U.S. companies raised nearly $17 billion in the bond market on Tuesday, and that does not include the $7 billion in paper that was either sold or being peddled by two Euoropean companies.

Leading the way was Fannie Mae, which sold $7 billion of five-year benchmark notes, according to Reuters. That was the mortgage company’s largest sale ever at that maturity, the wire service noted. In December, Fannie raised $3 billion in five-year notes and last September, it sold $7 billion of two-year notes. Last month, the mortgage finance company sold $6 billion of three-year paper.

The new issue was priced to yield 2.767 percent or 93 basis points over comparable U.S. Treasuries, according to the report.

Elsewhere, Altria Group sold $4.225 billion of debt in a three-part offering: $525 million of five-year notes priced to yield 587.5 basis points over Treasuries; $2.2 billion of 10-year notes priced at 637.5 basis points over Treasuries; and $1.5 billion of 30-year bonds priced at 650 basis points over comparable Treasuries.

The tobacco company reported that it will use the net proceeds from the offering to prepay its borrowing incurred under a 364-day bridge loan agreement to finance its acquisition of UST and to pay related transaction cost. The borrowings under the 364-day bridge loan bear interest at the initial interest rate of LIBOR plus the applicable margin, which is based in part on its long-term senior unsecured debt rating.

As of January 31, borrowings under the bridge loan were accruing interest at the rate of 2.68 percent per year. “Any net proceeds remaining from this offering after the repayment of our 364-day bridge loan agreement will be used for general corporate purposes,” the company stated in a regulatory filing.

For its part, Procter & Gamble said it raised $3 billion in a three-part deal that included $1 billion in one-year floating rate notes, $750 million in six-year notes, and $1.25 billion in 10-year notes. The consumer products company said it will use the proceeds for general corporate purposes.

In another offering, Newmont Mining raised $1.7 billion from the sale of 34.5 million shares of common stock and $517.5 million of 3 percent convertible senior notes due 2012. The company said it plans to use the net proceeds from the offerings to fund the acquisition of a remaining 33.33 percent interest in a project in Western Australia. The mining company stated if the acquisition is not completed, it will use the net proceeds from this offering and the stock offering for general corporate purposes.

Harley-Davidson also sold $600 million of senior unsecured notes as part of a plan to fund the ongoing motorcycle lending activities of its wholly owned finance company, Harley-Davidson Financial Services. Davis Selected Advisers, a long-time investor in Harley-Davidson, and the largest holder of the company’s stock, and Berkshire Hathaway, each committed to purchase equal portions of the principal amount of the notes.

The offering was made under the company’s existing shelf registration. The notes will be due in 2014 and will bear interest at a rate of 15 percent. It said it will use the net proceeds from the offering mainly to fund the liquidity needs of HDFS, which may include the repayment of short-term borrowings of HDFS, and for general corporate purposes. “We or HDFS may invest the funds that we do not immediately use in short-term marketable securities,” Harley added.

Further, Sunoco Logistics Partners Operations LP, a subsidiary of Sunoco Logistics Partners, sold $175 million of five-year notes. They were priced to yield 8.75 percent, or 690.1 basis points more than comparable Treasuries.

In Europe, KfW Bankengruppe sold $2 billion in a two-year global bond, according to Reuters. The bond was priced to yield 100.75 basis points over comparable U.S. Treasuries.

Meanwhile, Novartis is currently peddling $5 billion notes in two parts: $2 billion in five-year notes and $3 billion in 10-year notes. Reuters said both are expected to yield 225 basis points over Treasuries. The drug company said in a regulatory filing it intends to use the net proceeds for general corporate purposes outside of Switzerland.