High-Grade Corporate Market Sees More Than $15 Billion In New Bonds
February 03 2009 - 5:10PM
Dow Jones News
More than $15 billion of bonds are on offer in the
investment-grade corporate bond market Wednesday, as highly rated
companies and foreign banks jostle to raise billions of dollars to
fund their operations and repay acquisition-related debt.
Companies were selling $12.4 billion. Consumer goods
manufacturer Procter & Gamble Co. (PG) is planning to sell $3
billion in new bonds in three parts. Novartis AG (NVS) is looking
for $5 billion through the sale of five and 10-year bonds. Altria
Group Inc. (MO), the maker of Marlboro cigarettes, is in the market
with a $4.225 billion deal in five-, 10- and 30-year maturities,
with the proceeds earmarked to repay money put in place to fund its
acquisition of snuff producer UST, according to investors. Sunoco
Logistics Partners L.P (SXL) also priced $175 million of new
bonds.
Besides corporations, German state development agency KFW and
Swedbank (SWDBY) also hit the market for $4.45 billion between
them. Swedbank's bonds were guaranteed by the Swedish
government.
The willingness of investors to buy into new bond deals has
alleviated funding concerns for corporates at the top end of the
ratings spectrum.
"There's a lot of cash that needs to be put to work," said Mirko
Mikelic, portfolio manager at Fifth Third Asset Management in Grand
Rapids, Mich.
It has also allowed highly rated corporates to sell $100.29
billion of U.S. dollar-denominated bonds in January. This marks the
best start to a year on record, according to data provider
Dealogic, as investors continue to switch out of risk-free
Treasurys into higher-yielding corporate bonds and borrowers
capitalize on improved sentiment.
On the one hand, the bonds from P&G, Novartis and Altria
have all seen good demand because their business models hold up
well in an economic downturn. But investors are also piling into
these deals because they provide an opportunity for portfolio
diversification, said William Larkin, portfolio manager at Cabot
Money Management.
"Issuance is still bank and broker-heavy, so getting something a
little bit unique outside this sector is going to face strong
demand," he said.
Mikelic said companies may be looking to tap the market before
the release of the unemployment data Friday, which is expected to
be grim.
The new deals are incremental steps in the right direction for a
full re-opening of the corporate bond market, according to
Larkin.
"The credit markets are saying that we are moving to the other
side of this mess," he said.
But Mikelic said bonds from high-quality companies with
recession-proof businesses will continue to see demand. Others,
meanwhile, will continue to find it more difficult to find willing
investors.
"Everyone's looking to be defensive," Mikelic said. "Everything
else, good luck."
P&G, Novartis and Altria are expected to price their deals
later Tuesday.
- By Kate Haywood and Romy Varghese, Dow Jones Newswires;
201-938-2348; kate.haywood@dowjones.com
Click here to go to Dow Jones NewsPlus, a web front
page of today's most important business and market news, analysis
and commentary. You can use this link on the day this article is
published and the following day.