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Deals and Contingents: Last Week in Bonds

More than $33 billion in new corporate bonds hit the markets last week. About one-third of the total was from companies based outside the U.S. Here are summaries of some of the deals.

The week's big borrower was Eaton (NYSE: ETN  ) with $4.9 billion spread over five issues with maturities ranging from three to 30 years. The money is being used to fund Eaton's acquisition of Cooper Industries.

Barclays (NYSE: BCS  ) withdrew $3 billion against new 10-year bonds. The bonds are structured with a contingency that makes them worthless if Barclays' Tier-1 ratio -- a measure of financial strength -- falls below 7%. It's not unusual for companies to issue contingent convertible, or CoCo, bonds where the bonds are converted to equity based on some trigger, but it is unusual to have the contingency wipe out the bondholders.

And some say bonds are safe.

National Oilwell Varco (NYSE: NOV  ) drilled into a new cash supply with five-, 10-, and 30-year tranches totaling $3 billion. $2.5 billion of the new money will be used to finance the Robbins & Myers acquisition. The rest will go to general corporate purposes.

Financing for acquisitions was popular last week. Principal Financial (NYSE: PFG  ) joined the party with $300 million each of five-, 10.5-, and 30.5-year paper. Principal is putting the money toward its purchase of Chilean pension-management firm Cuprum.

Statoil (NYSE: STO  ) tapped in to $2 billion over three tranches. $500 million will be used to redeem higher-rate paper, while the rest will go toward "general corporate purposes, which may include working capital, the repayment of existing debt (including debt incurred in connection with acquisitions) or the financing of acquisitions."

Viacom (Nasdaq: VIA  ) floated a $250 million issue that could grow in size. The $250 million will be used for "repayment of outstanding indebtedness and the repurchase of shares." Viacom is also offering to exchange the new bonds for existing, higher-rate paper. The bonds offered in the exchange would be in addition to the $250 million, and there are $2 billion worth of older bonds that could be exchanged.

There was a little bit of everything in last week's bond issues -- even a chance to get wiped out. Low rates are lowering the cost of acquisitions, raising capital, and freeing up cash flow with refinancing. Companies are having no trouble raising money in the bond markets. I continue to believe these look like great deals for the borrowers, but not such great deals for the lenders.

National Oilwell Varco is perhaps the safest investment in the energy sector due to its industry-leading 60% market share. This company is poised to profit in a big way; its customers are increasing the number of new drilling rigs and updating an aging fleet of offshore rigs. To help determine whether NOV is a nice fit for your portfolio, check out our premium research report with in-depth analysis on whether NOV is a buy now. Click here to gain access to this premium report.

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