This Week in Corporate Finance
Global Capital Markets
Electricite de France SA, Europe’s biggest power producer, and Carlsberg Breweries A/S led 20 billion euros ($28 billion) of bond sales this week as investor demand spurred companies to raise cash. EdF sold 1.5 billion pounds ($2.4 billion) of 25-year bonds while Copenhagen-based Carlsberg raised $1.8 billion in euros and pounds in its first issue since 2004. Weekly issuance exceeded the 19.2 billion-euro average, driving the total for the year to a record 576 billion euros.
Citigroup Inc. sold $2 billion in 10-year notes last Friday that were not guaranteed by the U.S. government. The bank joins the growing list of financial companies selling unguaranteed debt to raise capital — and prove they do not need the government’s help to do so. JPMorgan Chase & Co., American Express Co. and U.S. Bancorp issued debt without government backing last week. Morgan Stanley, Bank of New York Mellon Corp., Goldman Sachs Group Inc., Northern Trust Corp. and BB&T Corp. have recently sold unguaranteed debt, too.
Warner Music Group more than doubled the size of its planned debt issuance to $1.1 billion on Wednesday, and Moody’s Investors Service upgraded the company’s credit rating. Warner said in a filing on Wednesday that its subsidiary, WMG Acquisition Corp., will offer the 7-year senior secured notes, using the proceeds plus $335 million in existing cash to pay off and close a secured credit line. The offering prompted Moody’s Investors Service to upgrade the company’s credit rating, raising its probability of default rating two notches to Ba2 from B1, and both senior discount and subordinated bonds to B1 from B3. Both ratings are still non-investment, or “junk,” grade.
Nalco Holding Co., a manufacturer of water treatment chemicals, says a subsidiary completed a $1.25 billion refinancing that will be used to retire debt and replace another loan. The refinancing by Nalco Co., the wholly owned subsidiary, replaces most of a term loan due in November 2010 and, with cash on hand, will be used to retire $475 million of senior notes that would otherwise be due in November 2011. The refinancing includes $750 million in new loans due in 2016 and $500 million of new senior notes due in 2017. The arrangements also include a new five-year, $250 million revolving credit facility supplied by seven banks, replacing the revolving credit facility that would have expired this November.
Speculative-grade borrowers are marketing debt this week after raising $1.3 billion yesterday, bringing monthly sales to the most since October 2007. Apria Healthcare Group Inc., which raised $700 billion to refinance a bridge loan arranged for its leveraged buyout in October 2008, and oil and natural gas producer Berry Petroleum Co. were among five issuers who sold high-yield, high-risk bonds on Thursday. May sales climbed to $17.5 billion, the most since junk- rated companies raised $19.6 billion in October 2007,
U.S. Treasuries
Treasuries headed for a weekly loss amid speculation the U.S. may lose its AAA credit rating as the Treasury prepares to sell $162 billion of notes and bonds next week to finance the budget deficit. Yields on 10-year notes climbed to 3.42 percent, a level not seen since Nov. 19, after Standard & Poor’s cut its outlook on the U.K.’s AAA credit rating yesterday and Pacific Investment Management Co.’s co-chief investment officer, Bill Gross, said the U.S. will “eventually” lose its top rating.
The Federal Reserve bought $7.699 billion of Treasuries maturing between February 2016 and February 2019 as part of the central bank’s effort to reduce lending rates and lift the world’s largest economy out of recession.
Commercial Paper Market
The global credit crisis and weak economy continued to corrode the U.S. CP market, which shrank to its lowest level outstanding in at least five years, Federal Reserve data showed on Thursday. For the week ended May. 20, the size of the U.S. CP market fell by $14.0 billion to $1.284 trillion outstanding, down from $1.298 trillion outstanding the previous week. The overall U.S. CP market peaked at about $2.2 trillion outstanding in August 2007 when the credit crisis erupted.
Asset-backed CP outstanding fell by $25.8 billion in the latest week after contracting by $23.0 billion the previous week. But unsecured financial issuance outstanding rose by $3.8 billion after falling by $47.3 billion the previous week.
LIBOR
The cost of borrowing in dollars between banks for three months had its biggest weekly drop this year as central-bank cash injections and interest-rate cuts made financial institutions less wary of offering credit. The London interbank offered rate, or Libor, for such loans was little changed at 0.66 percent on Friday, bringing its decline this week to 17 basis points, the most since the five days through Dec. 19, when it declined 42 basis points. The rate more than halved this year. Libor is used to set borrowing costs on about $360 trillion of financial products globally, according to the BBA.
The TED spread, the difference between what banks and the U.S. Treasury pay to borrow for three months, narrowed six basis points, or 0.06 percentage point, to 49 basis points today, the least since August 2007, when the credit crisis began. It peaked at 464 basis points on Oct. 10.
The Libor-OIS spread, another gauge of banks’ reluctance to lend that measures the difference in the three-month rate and the overnight indexed swap rate, decreased to 46 basis points, the least since February 2008. It has dropped from as high as 364 basis points in October. The rate is still above the 25 basis point level that Federal Reserve Chairman Alan Greenspan has said would mark a return to normal.
Credit Ratings
Britain may lose its AAA credit rating for the first time as government finances deteriorate in the worst recession since World War II. Standard & Poor’s lowered its outlook on Britain to “negative” from “stable” and said the nation faces a one in three chance of a ratings cut as debt approaches 100 percent of gross domestic product.
Banking
BankUnited Financial Corp., the ailing Florida lender, was shut by federal regulators and its assets were sold to private-equity firms including WL Ross & Co. and Carlyle Group in the largest U.S. bank failure this year. The group’s purchase of the bank, deemed “critically undercapitalized” by the Office of Thrift Supervision, was the “least costly” resolution, the Federal Deposit Insurance Corp. said today in a statement. The closing will cost the insurance fund $4.9 billion, pushing the total cost of 34 seizures so far this year.
TALF
The Federal Reserve will include legacy assets for the first time in a $1 trillion program to revive credit markets, expanding the effort to commercial real estate securities issued before the start of this year.
The central bank also expanded the number of credit-ratings companies permitted to rate assets for the Term Asset-Backed Securities Loan Facility to five.
Credit Cards
JPMorgan Chase & Co. sold $1 billion of bonds that are backed by credit-card payments and aren’t financed using loans from a U.S. program aimed at jump-starting lending, showing investors’ growing appetite for the debt. The top-rated securities yield 115 basis points more than the benchmark swap rate. The sale, initially set at $700 million, is the first public offering this year of credit-card bonds without the aid of the Federal Reserve’s Term Asset-Backed Securities Lending Facility.
Munis
Municipal bond sales rose to a four- week high of $9 billion as states and localities, led by New York City, expanded offerings to take advantage of yields that have dropped a percentage point or more the past six months.
IPOs
Shares of SolarWinds Inc. climbed Wednesday during the network management software maker’s first day of trading, marking the latest flicker of life in an IPO market that has barely registered a pulse this year. SolarWinds shares rose $2.19, or 17.5 percent, to $14.69 in afternoon trading. The stock trades on the New York Stock Exchange under the ticker “SWI.” The Austin, Texas-based company’s offering raised $151.5 million, since it priced 12.12 million shares of common stock at $12.50 per share on Tuesday night.
Tags: Banking, Commercial Paper Market, Credit Cards, Credit Ratings, Global Capital Markets, IPOs, LIBOR, Munis, TALF, U.S. Treasuries
