U.S. companies are barreling into European bond markets at the
fastest clip since the financial crisis, taking advantage of
record-low borrowing costs overseas.
On Thursday, Coca-Cola Co. became the latest American firm to
tap the market, selling EUR8.5 billion ($9.5 billion) worth of new
bonds, the largest euro-denominated bond from an American firm on
record and the second-largest by any company in the currency.
Bankers say they expect the trend to continue, as yields on
benchmark European government bonds keep falling amid concerns
about economic growth. The European Central Bank is expected to
begin a bond-buying stimulus program later this year, a move that
many investors say could further depress bond yields.
Including Coke's sale, the value of bond sales denominated in
euros from U.S. firms has more than doubled this year, to about $28
billion from $13 billion over the comparable span last year,
according to data provider Dealogic.
Selling bonds in euros makes sense for companies such as Coke
that have large international footprints, because it allows them to
better match liabilities with revenues in the same currency.
Companies can also lower their borrowing costs by selling to a new
set of buyers.
For investors, corporate bonds of any sort offer more yield than
what is available on much sovereign debt, and corporate bonds could
become more in demand as the ECB starts its bond buying. That
dynamic was on display Thursday as Coke received more than EUR20
billion in orders for its bonds.
"If you're a European investor, you're almost desperate for
credit product at this stage," said Michael Temple, head of credit
research and senior portfolio manager at Pioneer Investments, which
oversees $240 billion. "A lot of high-quality bonds are going to be
essentially taken out of circulation."
The bond sale follows other euro-denominated deals from U.S.
companies this week, including Priceline Group Inc., AT&T Inc.
and Mondelez International Inc.
Issuing bonds in Europe "is part of the dialogue with an
increasing percentage of clients," said Brendan Hanley, co-head of
Americas investment-grade capital markets at Bank of America
Merrill Lynch, which helped manage Coke's bond sale on
Thursday.
Coke sold bonds maturing between two and 20 years, with both
fixed and floating rates. An eight-year bond has a coupon, or
interest rate, of 0.75%. In comparison, similarly rated Chevron
Corp. sold a seven-year bond earlier this week in the U.S. with a
coupon of 2.411%.
Chris Johnson, a credit analyst at Standard & Poor's Ratings
Services, which has a double-A rating on Coke debt, said the
company's debt load has been at the "higher end" of its range
recently. He cited the company's recent investments in Monster
Beverage Corp. and Keurig Green Mountain Inc.
In a prospectus, Coke said it would use proceeds from Thursday's
sale to repay existing debt and for general corporate purposes,
which can include capital expenditures, acquisitions and stock
repurchases.
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