By
Russ Krull
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More Articles
May 23, 2011
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The Wall Street Journal reported that nonfinancial, corporate bond issues hit a record $29.7 billion last week. Let's see who's borrowing all that money and what they're doing with it.
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Company
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Amount Issued
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Coupon Rate
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Maturity
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Aetna (NYSE: AET )
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$500 million
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4.13%
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2021
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Google (Nasdaq: GOOG )
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$3.0 billion
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1.25%-3.625%
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2014-2021
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Johnson & Johnson (NYSE: JNJ )
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$4.4 billion
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Floating – 4.85%
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2013–2041
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Kellogg's (NYSE: K )
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$400 million
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3.25%
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2018
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McDonald's (NYSE: MCD )
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$400 million
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3.63%
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2021
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Texas Instruments (NYSE: TXN )
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$3.5 billion
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Floating – 2.375%
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2013-2016
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Sources: Reuters and SEC filings.
Six companies accounted for about 40% of last week's corporate bond issue and the most common plan for the money among this group is paying off commercial paper.
Google, Johnson & Johnson, and Kellogg's plan on using the money to repay commercial paper. In each case, the company is paying off inexpensive commercial paper with higher-yielding debt. My Foolish colleague Rick Aristotle Munarriz raised the obvious question on Google's new debt -- why does a company with billions in cash need to hit the debt markets?
McDonald's doesn't say how it will use the money. Aetna will be paying off a maturing bond issue, and Texas Instruments plans to put the money toward its acquisition of National Semiconductor (NYSE: NSM ) . Separate from the bond issue, Aetna announced an increase in its share buyback program.
As a stock investor, it's easy to ignore the bond market, but a look at debt and how a company uses that money should be a part of Foolish investment research.
In a week with record corporate debt, at least three big firms are borrowing money to pay off less expensive commercial paper, and Aetna has arguably decided share buybacks are a better use of money than paying down debt. That looks like companies preparing for -- or at least protecting against -- climbing interest rates. Smart investors will join those CFOs and take a look at what higher interest rates would mean for their portfolios.
Are interest rates headed up soon or will cheap money be here for some time? Add your opinion with a comment below.
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