Where's That Borrowed Money Going?

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New issues in U.S. corporate bond markets topped $36 billion last week, with more than half of the issues coming from companies based outside the United States.

Swiss-based mining giant Glencore Xstrata (LSE: GLEN  ) led the borrowing with a five-part, $5 billion issue. For that amount, investors should expect a little more detail than "to repay part of the amounts outstanding under certain indebtedness and for general corporate purposes" for the use of proceeds. One suspects there may be some bills to pay or capital structure rearrangements going on following Glencore's acquisition of Xstrata.

CF Industries (NYSE: CF  ) joined the billion-dollar-borrowers club with $1.5 billion split between 10- and 30-year issues. The fertilizer company is using the money "to fund its capacity expansion projects and working capital and for other general corporate purposes, including stock repurchases." Last November, the company announced a $3.8 billion plan to construct new production capacity in Louisiana and Iowa. Wow, a company borrowing money to do something that creates jobs!

Kimberly-Clark (NYSE: KMB  ) sold more than tissue paper last week, with $850 million in new debt spread over three-, 10-, and 30-year notes. Of that amount, $500 million is going toward redeeming 5% notes maturing in August. The rest is for "general corporate purposes." The debt service on the new $850 million will be $6 million per year less than for the $500 million of maturing notes.

Concho Resources (NYSE: CXO  ) reopened an issue from last August and sold $850 million of 10-year, 5.5% paper. Concho got a better deal on this round, selling the paper at 103.75% of par, compared with even par last August. About $320 million of the new money is funding a tender offer for some higher-rate 2017 paper. The rest of the money goes toward paying down a credit facility and for general corporate purposes.

Finally, Ireland-based biotech Elan (UNKNOWN: ELN.DL2  ) issued $850 million of eight-year notes. The money is going to help pay for a royalty stake in some Theravance products. Elan expects the transaction to add to earnings starting in 2014. My Foolish colleagues Sean Williams and Brian Orelli think this might be a better deal for Theravance than for Elan.

I think the Federal Reserve is hoping low rates will mean more capital expansion projects like CF's, but mergers and acquisitions, the refinancing of debt, and share buybacks continue to be popular uses for today's cheap credit.

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9/29/2016 2:36 PM
CF $24.41 Up +0.46 +1.92%
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ELN.DL2 $0.00 Down +0.00 +0.00%
Elan CAPS Rating: ***
GLEN $215.47 Up +6.12 +2.92%
Glencore CAPS Rating: No stars
KMB $125.70 Down -0.78 -0.62%
Kimberly-Clark CAPS Rating: ****