NEW YORK: Coca Cola Company set 2011 records today for the lowest coupons on five- and 10-year debt; claiming 1.804pc on $1 billion of fives and 3.30pc on $1 billion of 10s.
In the five-year market, Coke knocked off a record for five-year money set in July by IBM, which had a 1.95pc coupon a $2 billion deal.
The year's record low comes amid a rush of companies pricing deals across the maturity spectrum at their lowest funding levels.
South-western Public Service Co's $200 million 4.5pc 2041s issued today has tied for the lowest ever 30-year coupon by a corporate. Dominion Resources's $500 million 30-year holding company issue at 4.9pc made it to IFR's top 20 lowest 30-year coupon list this week, as did Public Service Co of Colorado's $250 million 30-year first mortgage bonds, with the second lowest 30-year coupon in history at 4.75pc.
Even BBB-minus rated companies, like Lorillard Tobacco were able to lock in personal bests at the 30 year end. Lorillard priced a $500 million five-year at 3.5pc and during the marketing phase decided to add a $250 million tranche of 30-year bonds, with a coupon of 7pc - 1.125pc better than the coupon on a 30-year it did last year.
The Barclays Capital US Corporate Index this week hit its lowest yield in 38 years at 3.42pc, which is 5bp lower than its previous record of 3.47pc reached in November last year. The index has an average maturity of 10.34 years.
Dismal economic news is driving Treasury yields to their tightest this year, and intensified investors' flight to safe haven high-grade corporate debt, making it a perfect storm for companies looking for funding.
The Barclays Capital US Corporate Index this week hit its lowest yield in 38 years at 3.42pc, which is 5bp lower than its previous record of 3.47pc reached in November last year. The index has an average maturity of 10.34 years.
A plunge in the 30-year Treasury yield below the critical 4pc level to 3.843pc, its lowest since October 2010's 3.65pc, has also led to a flurry of 30-year bond offerings from utilities and corporates this week.
South-western Public Service Co's $200 million 4.5pc 2041s issued today has tied for the lowest ever 30-year coupon by a corporate. Dominion Resources's $500 million 30-year holding company issue at 4.9pc made it to IFR's top 20 lowest 30-year coupon list this week, as did Public Service Co of Colorado's $250 million 30-year first mortgage bonds, with the second lowest 30-year coupon in history at 4.75pc.
Even BBB-minus rated companies, like Lorillard Tobacco were able to lock in personal bests at the 30 year end. Lorillard priced a $500 million five-year at 3.5pc and during the marketing phase decided to add a $250 million tranche of 30-year bonds, which it priced at 7pc - 1.125pc better than the coupon on a 30-year it did last year.
Drivers of the low-yield environment include bad economic news, low dealer inventories for at least two months, a drop in bond issuance in the last two months and inflows - for 30 weeks until this week - into high grade bond funds.
"We are pounding the table telling clients that right now the market is in extremely good shape, despite the negative headlines and their impact on the broader market," said Rob Kay, managing director and head of investment grade and emerging market debt syndicate at Credit Suisse. "The incredibly favourable technicals in the market, coupled with the fact that a corporate can lock in all-time low coupons means that if you are not thinking about doing a deal, you should be thinking about one."
Treasury yields could well go lower in the near future if Friday's employment figures for July are worse than expected.
Even so, bankers are persuading issuers to come now, rather than later, for the very fact that the rally is based on a more uncertain world, not an improving one.
"Absolute rates are so much lower that certainly an issuer has to take a second look at this market," said David Trahan, managing director and head of investment grade debt syndicate at Citigroup. "If they are looking at funding later in the year and we are rallying because the world is not a safe place, why would you hesitate?"
Opportunistic issuers like Coca Cola, as well as scheduled deals being pulled forward are filling the calendar.
"We recommend issuers being more opportunistic when looking to access the capital markets. Rates and spreads are currently near all-time low levels for many borrowers so capital is available on attractive terms," said Jim Glascott, head of global debt capital markets at Barclays.
The rally in Treasury yields has coincided with some of the best technicals seen in the market in a year.
Wall Street dealers have kept their inventories low for several months, making it difficult for investors to find any single-A and better rated corporate paper in the secondary market.
That's pushed investors into the new-issue market in search of bonds, at a time when earnings season and heightened nerves over European and US sovereign debt has kept many issuers on the sidelines.
"Net supply of investment grade corporate bonds since June 1st has been very light and by some counts, it is actually negative after accounting for fund inflows," said Rob Stowe, managing director in Barclays Capital's debt capital markets group.
Issuers also know from experience that windows for issuance can shut quickly.
"We haven't seen rates at these levels since last November and even then they were only at this level for a three-month period," said Andrew Karp, managing director and head of investment grade debt syndicate for the Americas at Bank of America Merrill Lynch. "Now they are back again and it's possible that could ignite a new round of accelerated financings."
That's resulted in excellent deal execution, with books many times oversubscribed and new issue concessions dropping to what has been close to flat for many trades this week.
Copyright Reuters, 2011
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