High-Grade Companies Selling Bonds To Hungry Investors
February 17 2009 - 2:08PM
Dow Jones News
The corporate bond market is catching a huge gust of wind in its
sails on Tuesday, as companies are lining up in droves to raise
financing for everything from funding acquisitions to buying back
stock.
Swiss pharmaceutical company Roche Holding AG (ROG.VX) is in the
market via Roche Holdings, Inc., with four-part bond offering that
market participants expect to total at least $1 billion, but likely
far more.
The company is seeking financing in part to fund the approximate
$40 billion cost of acquiring the outstanding 44% stake in U.S.
biotech company Genentech Inc. (DNA), in which it already holds 56%
interest.
Honeywell International Inc. (HON) launched a $1.5 billion
two-part offering, with five-year notes offering a risk premium of
225 basis points over Treasurys and 10-year bonds at a spread of
237.5 basis points.
Atlanta-based Coca-Cola Enterprises Inc. (CCE) and chemical
maker DuPont Co. (DD) are currently marketing bond deals.
And transportation company Union Pacific Corp. (UNP) is raising
money in part to fund its share repurchase program.
Companies are rushing to obtain financing in an issuer friendly
climate - low rates combined with heavy demand.
"Today's action will go toward general corporate purposes as we
take advantage of the current attractive rates," said Anthony R.
Farina, DuPont's director of global public affairs.
Some investors spurned by the plunge in stock prices have turned
their backs on equities and are finding an alternative in the debt
markets, where returns are exponentially more promising than those
in the stock market.
"The bond market has become a more viable investment option than
the stock market," according to Bill Larkin, fixed-income portfolio
manager at Cabot Money Management.
Larkin added that doubts about the government's rescue package
and bailout plan have caused a slide in stock prices, and portfolio
managers have moved away from equities and toward bonds. "Money is
looking for a safe place to go, and higher-quality corporates
outside of banks and finance are benefitting from that."
Last week, $15 billion of fresh corporate debt was snapped up,
confirming that the corporate bond market is very much open for
business, and cash-heavy buyers are clamoring for more.
The corporate bond sector has recently outperformed other areas
of the credit markets and is currently providing a cushy issuing
environment for sellers via low Treasury yields amid heavy investor
demand.
Moody's Investors Service's capital markets research group said
Tuesday they expect U.S. corporate bond issuance to grow by 7% in
2009, propelled by a successful FDIC-backed short-term issuing
program and attractive financing costs for borrowers.
So while companies that were shut out of the new-issue market
just a short while ago are now able to obtain financing at
reasonable cost, investors are right behind scrambling to get a
piece of the action.
With diversification key, money managers are also benefitting
from some slight competition.
The $700 million Union Pacific deal includes a change-of-control
provision, which allows bondholders the option of selling back
their bonds at a premium to the company in the event of a takeover
or sale.
In late 2006 and early 2007, bond buyers demanded covenants be
included in the language of bond contracts, offering holders
protection against the biggest threats back then - leveraged
buyouts and ratings downgrades. But during the current issuing
frenzy, covenants are being considered more of a bonus than a
necessity.
"That's a pendulum that swings both ways," Larkin said. "They're
added to sweeten the deal; The company is adding tidbits to make it
more attractive and get my attention." Larkin said the provisions
put a positive twist on standout issues in a seemingly competitive
market.
-By Kellie Geressy; Dow Jones Newswires; 201-938-2050;
kellie.geressy@dowjones.com