2ndUPDATE:Abbott, Chevron Among High-Grade Cos Issuing New Bonds
February 26 2009 - 3:40PM
Dow Jones News
Chevron Corp. (CVX) and Abbott Laboratories (ABT) are marketing
$8 billion in bond deals Thursday as they refinance short-term
borrowings into long-term debt in demand by investors.
Chevron's $5 billion deal consists of three, five- and 10-year
bonds that would in part refinance debt including commercial paper,
short-term notes used to fund everyday needs like payroll and
rent.
The company had $5.7 billion in commercial paper outstanding at
the end of 2008, according to a filing. The company reclassified
the bulk of its short-term debt as long-term.
The new Chevron bonds will all come with a risk premium, or
spread, of 195 basis points over comparable Treasury yields,
according to the price talk.
Meanwhile, Abbott launched $3 billion of bonds maturing in 10
and 30 years. The health-care company said it would use the
proceeds to repay about $1 billion in commercial paper and for
other corporate purposes.
The $2 billion 10-year piece was launched at a risk premium of
220 basis points over Treasurys, and the $1 billion 30-year issue
was launched at a spread of 235 basis points over Treasurys.
An existing 10-year note from Abbott due 2017 is trading at a
spread of 202 basis points over Treasurys, according to
MarketAxess.
These companies don't issue bonds as often as others, and so are
of particular interest to investors looking to diversify their
holdings. The last time Chevron issued debt was a $750 million deal
in 2003; Abbott, a $3.5 billion deal in 2007, according to data
provider Dealogic.
"New or less frequent high-quality issuers have generally been
met with strong demand as investors seek to add new issuers to
their portfolios," said Jon Duensing, principal at Smith Breeden
Associates.
He expects issuance from high-quality issuers to continue given
large refinancing needs, and that it will see good reception from
investors.
"The companies that have accessed the market have been
predominately stronger, better-capitalized businesses, with the
wherewithal to handle an economic downturn," said Tim Compan,
corporate bond portfolio manager at Cleveland-based Allegiant Asset
Management. "There has, and will be indigestion as spreads tighten,
but for the most part, new issues have been well-received."
February already ranks as the ninth-largest on record in
issuance of U.S. dollar-denominated high-grade debt, according to
Dealogic. The month's tally stands at $67 billion and for this week
alone, $9 billion, in bonds not backed by the Federal Deposit
Insurance Corp.
Energy and utility companies made up a majority of bonds sold
this week, and more are on tap. Oneok Inc. (OKE), Alabama Power,
and Williams Cos. (WMB) are also offering smaller deals that
totaled $1.6 billion. Investors consider such companies as faring
better than others, such as retailers, in the weakening
economy.
Noble Energy Inc. (NBL) sold $1 billion of 10-year bonds that
offered a risk premium of 550 basis points over Treasurys on
Tuesday. The spread has since decreased to 500 basis points,
indicating investor demand.
The corporate supply Thursday comes amid a glut of other debt.
Fannie Mae (FNM) sold a record $15 billion in two-year notes, which
went on to trade well in the so-called secondary market. Meanwhile,
there will be an auction of seven-year Treasury notes Thursday
afternoon.
-By Romy Varghese, Dow Jones Newswires; 215-656-8263;
romy.varghese@dowjones.com
(Kate Haywood contributed to this report.)