Capital Markets

Investors Crave Corporate Bonds

Sales have amounted to more than $22 billion so far this week, including $10 billion on Thursday alone.
Stephen TaubFebruary 27, 2009

The corporate bond market, which has been vibrant for a few months, continued its invulnerability to the credit crunch this week. The culmination came on Thursday, when five issuers sold about $10 billion worth of the paper.

Bloomberg News counted $22.6 billion in bond sales for the first four days of the week, capping what the wire service proclaimed as a record month for bond issuance by non-financial firms.

Thursday’s largest offering came from Chevron Corp., which sold $5 billion of debt in three parts: $1.5 billion of three-year notes, $2 billion of five-year notes, and $1.5 billion of 10-year notes.

All of the issues were priced to yield 195 basis points more than comparable U.S. Treasuries, according to the company’s regulatory filing. The paper was rated Aa1 by Moody’s and AA by both Standard & Poor’s and Fitch.

“The ratings on Chevron reflect the company’s standing as one of the world’s five-largest privately held, vertically integrated oil and gas corporations,” S&P credit analyst David Lundberg wrote in a report. He added that the company’s massive and geographically diverse upstream operations, meaningful downstream and chemicals operations, and conservative financial policies underscore the ratings.

Chevron said it plans to use the proceeds from the offering for general corporate purposes, including refinancing existing commercial paper borrowings or long-term or short-term debt, and for financing capital programs.

Abbott Laboratories on Thursday sold $3 billion in two parts: $2 billion in 10-year notes priced to yield 5.18 percent, or 220 basis points over comparable Treasuries, and $1 billion in 30-year bonds that will yield 6.016 percent, or 235 points over the benchmark, according to a company filing. The paper was rated A1 by Moody’s, AA by S&P, and A-plus by Fitch.

“The strong investment-grade rating on Abbott reflects the company’s solid positions in a number of diverse health care segments, its strong financial profile, and its robust discretionary cash flow,” said Standard & Poor’s credit analyst Arthur Wong. He added that Abbott continues to maintain a broad product portfolio with solid positions in various health care segments, including pharmaceuticals, nutritionals, diagnostics, vascular devices, and with the acquisition of AMO, ophthalmics.

The company said it plans to use the proceeds for repayment of commercial paper and for general corporate purposes. As of year-end, it had $1 billion in outstanding principal balance of commercial paper.

Williams Cos. said it priced $600 million of senior notes due 2020 in the private placement market. The notes were priced to yield 8.875 percent, 590.5 points over Treasuries. Reuters reported that the deal was increased from an originally planned $500 million.

The natural gas transporter said it intends to use the proceeds for general corporate purposes, including enhancing its liquidity position and funding capital expenditures.

Elsewhere in the energy patch, natural gas processor Oneok Partners LP said it priced $500 million of 10-year senior notes. Reuters said they will yield 8.676 percent, or 570 points over Treasuries.

Oneok said it expects to use the proceeds to repay indebtedness outstanding under its $1 billion revolving credit agreement.

Tyson Foods sold $810 million of five-year, below-investment-grade senior notes in the private placement market. The paper, rated Ba3 by Moody’s and BB by S&P, were priced to yield 12.50 percent, or 1,057 points more than Treasuries.

Videotron Ltd, a subsidiary of Quebecor Media Inc., added $260 million to its existing 9.125 percent senior notes due April 2018, according to Reuters. That brings the total amount outstanding to $715 million.

Bloomberg noted that demand for non-financial corporate debt is coming from investors moving money out of equities and other higher-risk assets, as a way to be involved with a company higher up in the capital structure.