Europe: Good Days, Bad Days

Investment-grade debt issuers take advantage of optimism over a second Greek bailout.
Vincent RyanApril 15, 2012

While Europe remains a major concern for U.S. finance executives (see “Like It or Not, You’re in the Euro Zone”), the news in March that euro-zone countries agreed to provide Greece with another $170 billion in bailout money ahead of a looming bond payment brought U.S. issuers off the sidelines. In a flurry of deals, Citigroup, Marriott International, BHP Billiton, Goodyear, and Deere Capital, among others, obtained cheap new financing. Billiton’s issuance of $5.25 billion in new paper included $1 billion of 30-year notes at a 102 basis-point spread over Treasuries.

Interest rates that issuers are paying on investment-grade corporate paper fell to near-record lows. Further, the yield on the Barclays Capital Corporate Investment Grade Index sank to 3.37, the lowest level since August 2011.

“Typically, the bond markets are open [or] they’re shut, and they really go through these swings in terms of accessibility to capital,” says Brian Hart, a partner in the corporate finance practice at Jenner & Block. “Right now investment-grade issuers see an opportunity to raise funds.”

If companies can lock in a senior note at historically low interest rates and take the maturity out 8 to 10 years, it’s worth giving investors something in return, says Hart. In exchange for such low rates, “I’ve seen companies give the bondholders price protection in case there’s a refinance,” he says.