By Patrick McGee
The corporate bond market had its busiest session for new deals
in more than a month Monday, as companies finish up with the
earnings season and switch their focus to funding needs.
Eight companies, including PepsiCo Inc. (PEP), UnitedHealth
Group Inc. (UNH) and Caterpillar Inc. (CAT), leapt into the market
to raise cash, pricing at least $9.6 billion of bonds in the
busiest session since Jan. 16, according to data provider
Dealogic.
"The market seems vibrant," said Tom Farina, head of credit at
Deutsche Bank Trust Co. He said the recent lull in issuance has
helped to underpin demand for new deals.
Buyer appetite was strong even as stocks fell and some corporate
bonds faltered in the secondary market. The safe-haven 10-year U.S.
Treasury rallied for a fourth-straight session, sending its yield
down to 1.895%.
The $9.6 billion session compares with average weekly issuance
of $15.6 billion over the past month. Volume is typically slow in
February as companies post fourth-quarter and full-year earnings,
whereas March is often the busiest month of the year.
Monday's three biggest deals each included a tranche of
floating-rate notes, a type of short-term bond whose interest
payment resets every quarter. This allows them to retain value if
interest rates rise. Yields move inversely to prices, so fixed-rate
bonds drop in price as interest rates climb.
When a company sells floating-rate notes, its borrowing costs
are tied to the three-month London interbank offered rate, or
Libor, which has declined 0.02 percentage point this year to 0.29%.
A year ago it was 0.49%.
The drop in Libor means companies can issue floating-rate notes
at a lower cost, whereas U.S. Treasury rates, the benchmark for
fixed-rate bonds, have risen.
"[Short-term] rates are so attractive right now--it's too good
to pass up," said Kathleen Gaffney, portfolio manager at Eaton
Vance, referring to company borrowing plans.
Pepsi sold $2.5 billion worth of bonds, including $625 million
of three-year floating-rate notes paying 0.21 percentage point over
the Libor rate. It also priced three-year fixed-rate notes at
0.712% and 10-year bonds paying 2.761%.
UnitedHealth Group was on track to sell $2.25 billion of bonds
in a four-part deal featuring fixed maturities of between six years
and 30 years. The company added an 18-month floating-rate tranche
Monday afternoon because of heavy demand, people familiar with the
transaction said.
Caterpillar unit Caterpillar Financial Services Corp. was on
pace to raise $1.1 billion in a four-part deal.
Smaller issuers in Monday's market included French lender BNP
Paribas (BNP.FR), Cincinnati lender Fifth Third Bancorp (FITB),
communications company Motorola Solutions Inc. (MSI), energy
company Consolidated Edison Inc. (ED) and Spectra Energy Corp.
(SE).
Write to Patrick McGee at patrick.mcgee@dowjones.com
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