Yield-Starved Investors Gobble Up $11 Billion Of Corporate Bonds
March 08 2011 - 5:16PM
Dow Jones News
Companies capitalized on investors' growing dissatisfaction with
low-yielding government debt Tuesday by offering $11 billion of
high-grade corporate bonds to eager buyers.
That was the highest investment-grade volume since Feb. 14, when
$10.2 billion was sold, according to data provider Dealogic.
BP Capital Markets Plc, the funding arm of U.K. energy giant BP
PLC (BP, BP.LN), led the way by selling $3.5 billion of fixed- and
floating-rate notes and bonds. It was BP's second sale of that size
since its Gulf of Mexico oil spill disaster last April. Investors
placed nearly $5 billion of orders.
A $1.6 billion batch of five-year fixed-rate notes priced at a
slight discount to yield 3.22%, or a risk premium of 1 percentage
point over comparable government debt. Also, $1.4 billion of
10-year fixed-rate securities priced to yield 4.742%, or 1.2
percentage points over Treasurys, and $500 million of three-year
floaters sold at 0.6 percentage point over the three-month London
interbank offered rate, a benchmark.
The five-year piece was originally marketed at 0.95 of a
percentage point over Treasurys early Tuesday, said Patrick Sporl,
senior portfolio manager at American Beacon Advisors, who said that
rate was "preliminary" and was circulated before the deal had been
properly vetted by the market.
Typically, price talk on bond deals falls as investors pile into
a deal, so the spread widening was likely the result of
underwriters trying to lower BP's borrowing costs before investors
started to push back on the deal's pricing.
American Beacon sold out of BP bonds in the second quarter of
2010 following the Macondo oil spill and concern about the
company's financial stability. At the time, those bonds were
trading at around 95 cents on the dollar.
Nearly a year later, BP has a firmer financial footing and
American Beacon is looking to buy back into its bonds. The fund
manager didn't invest in BP's $3.5 billion September issue because
of lingering uncertainty over its legal liability and cleanup costs
from the spill.
"Now it appears as if microbes ate up all the oil and it appears
to be contained," said Sporl, who is looking at the five-year
fixed-rate and three-year floating-rate tranches. The fund is
already overweight 10-year bonds from industrial issuers.
Existing 3.875%, four-year BP bonds due March 2015 were trading
Tuesday with a risk premium of 0.42 percentage point over
Treasurys, according to MarketAxess data--after touching 7.79
percentage points over the risk-free rate last June and trading at
just 86 cents on the dollar. As of Tuesday, that bond was trading
at 104.6 cents.
Likewise, the cost of five-year protection on $10 million of BP
bonds using credit derivatives was quoted by data provider Markit
at $70,000 a year on Tuesday, down 86% from the highest level
recorded on June 17 last year.
A BP spokesman said the offering was "just part of [BP's]
overall group-funding requirements" and that proceeds would be used
for general corporate purposes.
Also in the market Tuesday were ING Bank NV with a $3.5 billion
deal; offshore drilling services company Ensco PLC (ESV), which
sold $2.5 billion of five- and 10-year bonds to help fund its
merger with Pride International Inc. (PDE); consumer electronics
retailer Best Buy Co. Inc. (BBY) with $1 billion--its first debt
sale since June 2008; and a unit of Bermudian food company Bunge
Ltd. (BG), with $500 million.
-By Katy Burne, Dow Jones Newswires; 212-416-3084;
katy.burne@dowjones.com.
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