Corporate Borrowers Race To Issue Bonds Before Window Closes
May 31 2011 - 5:01PM
Dow Jones News
A trio of investment-grade companies were in the market to sell
about $1 billion of bonds Tuesday, taking advantage of pent-up
demand following the Memorial Day weekend and capping one of the
busiest months ever for corporate debt issuance.
Airgas Inc. (ARG), Camden Property Trust and Qwest Corp.
together brought an estimated $950 million of bonds, according to
people familiar with the transactions, while speculative-grade, or
junk-rated, companies had a combined $550 million on tap from Puget
Energy and Cinemark USA.
Portfolio managers have soaked up the supply of new bonds
despite low rates, partly because the alternatives were less
palatable--five-year Treasurys, for example, yield less than
1.7%--but also because they had to put their clients' money to
work.
"If you are a corporate issuer it's a great time to come to
market now," said Michael Collins, senior investment officer and
credit strategist at Prudential Fixed Income. "We should continue
to see a lot of supply as long as rates stay low."
Before Tuesday, companies had already sold $95.8 billion of
high-grade deals in the U.S. this month, according to data provider
Dealogic. That makes this month the fourth-busiest May since at
least 1995 but the biggest May ever when excluding banks and other
financial-services companies, with $62.4 billion.
Speculative-grade companies, meanwhile, sold $46.17 billion of
U.S.-marketed junk bonds so far this month, Dealogic said. That is
well ahead of the previous monthly record of $36.3 billion in March
2010.
Airgas, which has been buying back stock and recently acquired
Pain Enterprises Inc., a maker and distributor of dry ice and
liquid carbon dioxide, priced $250 million of 2.95% five-year notes
to yield 2.98%, or 1.30 percentage points over comparable
Treasurys.
Camden Property Trust sold $500 million of 10- and 12-year bonds
that priced to yield 4.70% and 5%, respectively, or 1.65 and 1.95
percentage points over Treasurys; and Qwest Corp., a subsidiary of
internet and telecommunications provider CenturyLink Inc. (CTL),
was selling $200 million of 40-year debt, expected to price
Wednesday. In the junk bond market, Puget had a $350 million deal
and Cinemark a $200 million 10-year bond.
One syndicate manager said he expects companies will offer $10
billion to $15 billion in new high-grade bond sales this week
alone.
So thick and fast has corporate debt issuance been, it may be
unreasonable to expect it to continue at this pace if interest
rates start to rise with the end of the Federal Reserve's second
round of quantitative easing, or QE2, in late June. That's why many
corporates are looking to tap the market now while rates are still
attractive.
QE2 damped volatility in government bonds, to which corporate
debt is benchmarked, and if the central bank ceases to be the
biggest buyer of U.S. Treasury debt, interest rates could start to
creep up from their current near-historic lows. The risk is that a
sharp and sudden rise in rates may catch the market by
surprise.
For that reason, professional investors are being more
selective, to insulate their portfolios against potential rate
rises. As bonds' yields rise, their prices fall.
"There is still a lot of cash on the sidelines and that should
keep risk assets doing O.K. for a while," said Greg McGreevey,
president of Hartford Investment Management Company, which oversees
about $160 billion in assets. "But as the government pulls back
fiscal stimulus, that lack of support will create a slowdown that
will impact corporate spreads."
Kevin Anderson, global chief investment officer of fixed income
and currency at State Street Global Advisors, said investors can no
longer "buy the market," but need to find and focus on individual
corporate bonds that still offer value.
Two examples of investors' being choosy: Tuesday saw strong
demand for Walt Disney Co.'s (DIS) 3.75% 10-year issue, making it
the single most active issue in investment-grade secondary trade
Tuesday, according to Andrew Wilkinson, senior market analyst at
Interactive Brokers Group.
There was also demand for ArcelorMittal (MT), whose 3.75% bonds
fall due in six years time, after the company got the green light
for its purchase of German coke producer Kokeri Prosper.
-By Katy Burne, Dow Jones Newswires; 212-416-3084;
katy.burne@dowjones.com
--Anusha Shrivastava contributed to this article.
Airgas (NYSE:ARG)
Historical Stock Chart
From Apr 2024 to May 2024
Airgas (NYSE:ARG)
Historical Stock Chart
From May 2023 to May 2024