Capital Markets

Spreads Narrow as Companies Raise $7B in New Capital

Cisco leads the pack with two bond offerings totaling $4 billion.
Stephen TaubFebruary 10, 2009

The surging corporate bond market enjoyed another strong day of new issuance yesterday, as five companies raised about $7 billion.

U.S. companies sold $181.7 billion of bonds this year through Monday, up 42 percent from the same period last year, reported Bloomberg. What’s more, spreads are narrowing significantly. Indeed, yields compared to their benchmark rates on both investment-grade and high-yield debt have dropped to their lowest levels since October, a reflection of investor demand, the wire service pointed out

The largest offering on Monday came from Cisco Systems, which raised $4 billion in a two-part offering. The networking giant sold $2 billion of 10-year notes priced to yield 4.979 percent, or 200 basis points more than comparable Treasuries, and $2 billion of 30-year bonds priced to yield 5.916 percent, 225 points over the benchmark. The issues were rated A1 by Moody’s and A-plus by Standard & Poor’s.

Cisco said in a regulatory filing that it intends to use the proceeds from the offering for general corporate purposes and to repay $500 million in aggregate principal related to its floating rate notes due 2009.

Elsewhere, Unilever Capital, a subsidiary of Unilever Plc, sold $1.5 billion, also in two parts. The consumer products and food company sold $750 million of five-year notes, priced to yield 3.669 percent, or 170 basis points over Treasuries, according to Reuters. The company also sold an equal amount of 10-year notes, priced at 180 points over the benchmark. Both issues were rated A1 by Moody’s and A-plus by S&P, and Unilever said it plans to use the net proceeds for general corporate purposes.

Health care company McKesson Corp. said it sold $700 million of notes in two parts. It sold $350 million of five-year notes and $350 million of 10-year notes. Both issues were priced at 450 basis points over their benchmark. The issues were rated Baa3 by Moody’s and BBB-plus by S&P, said Reuters.

McKesson said it plans to use the net proceeds from the sale of the notes for general corporate purposes.

CSC Holdings Inc, a subsidiary of Cablevision Systems Corp., sold $526 million of 10-year senior notes in a private placement. It said it intends to use the net proceeds from the junk bond offering to address Cablevision’s and the company’s upcoming debt maturities. The paper was priced to yield 634 points over Treasuries. The issue was rated B1 by Moody’s and Double-B by S&P. 

Also, Connecticut Light and Power Co, a unit of Northeast Utilities, sold $250 million of 10-year first mortgage bonds, according to Reuters. Rated A3 by Moody’s and BBB-plus by S&P, they were priced to yield 250 basis points over comparable Treasuries.

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