New issues in U.S. corporate bond markets topped $43 billion last week, with the action dominated by big issuers. Here are a few of the highlights.
Apple (AAPL 1.36%) usually makes a big splash when introducing new products, and it continued that tradition by making the largest corporate debt issue in history. The company borrowed $17 billion spread over six tranches, as shown in the table below.
|
Principal Amount |
Coupon Rate and Maturity |
|
$1,000,000,000 |
Floating-rate notes due 2016 |
|
$2,000,000,000 |
Floating-rate notes due 2018 |
|
$1,500,000,000 |
0.45% notes due 2016 |
|
$4,000,000,000 |
1% notes due 2018 |
|
$5,500,000,000 |
2.4% notes due 2023 |
|
$3,000,000,000 |
3.85% notes due 2043 |
Source: Apple 424B2 SEC filing dated May 1, 2013.
The money will be used "for general corporate purposes, including repurchases of our common stock and payment of dividends under our recently expanded program to return capital to shareholders."
It may seem strange that a company with a large pile of cash on its balance sheet would borrow to finance dividends and share buybacks, but when much of that cash is offshore, borrowing can make more sense than paying taxes to bring the capital back to the U.S. CAPS player ikkyu2 posted a good blog write-up explaining why borrowing is a better deal for the company than repatriating the cash. Apple is essentially shorting bonds to buy its stock. Given the low rates on the bonds, investors might want to pass on the other side of that trade.
During an ordinary week, CNOOC's (CEO +0.00%) four-part, $4.5 billion offering would have been the big deal. The money will be used to help repay a bridge loan that financed CNOOC's acquisition of Nexen. If anyone still needs evidence that business is an international enterprise, the Chinese oil company borrowed U.S. dollars through its British Virgin Islands finance subsidiary to pay for the acquisition of a Canadian company.
Barrick Gold (ABX 3.19%) and its North American finance subsidiary dug up $3 billion over three issues. $2 billion pay down a revolving credit facility, $500 million will repay maturing notes, and the other $500 million goes to the ever-uninformative "general corporate purposes."
IBM (IBM +1.92%) placed $2.25 billion split between three- and seven-year paper. The "Use of Proceeds" statement only listed "general corporate purposes." A search at FINRA.org turned up four issues totaling more than $4.5 billion maturing over the next 12 months, so it's a good bet that debt repayment will be the specific corporate purpose for the new money.
In the high-yield space, Constellation Brands (STZ +1.00%) popped the cork on eight- and 10-year paper totaling $1.55 billion. In this case, "high yield" is only 3.75% and 4.25%, respectively. The money will be used to help fund the company's acquisition of the 50% of Crown Imports it doesn't own, along with Grupo Modelo's brands. The company will also be tapping credit facilities for about $3 billion in addition to this note issue to finance the deal.
Even with the big offerings from Apple and CNOOC, I think the low rates for high-yield deals are the most interesting part of recent new bond issues. Investors are bidding up the prices -- which lowers rates -- on these deals to the point where there isn't much risk premium for the lower credit quality. The rates on the Constellation paper don't leave much for either credit-rate or interest-rate risk.
