Author: Gordon Platt

CORPORATE FINANCING NEWS: CORPORATE DEBT

By Gordon Platt

Pent-up demand following a shutdown for Hurricane Sandy combined with near-record-low interest rates to release a torrent of new corporate bond issues in early November. AbbVie, the pharmaceutical unit of Abbott Laboratories, sold $14.7 billion worth of bonds in the largest offering in the US corporate debt market in more than three years.

The six-part deal came ahead of Abbott’s split into two companies, a pharmaceuticals business and a medical-devices manufacturer, which will retain the Abbott Laboratories name. The offering, which was sold as a private placement, was the largest dollar-denominated corporate bond sale since Roche Holding issued $16.5 billion of debt in February 2009.

Abbott’s arthritis drug Humira is the largest selling pharmaceutical worldwide. “AbbVie’s Baa1 rating reflects the blockbuster success of Humira and the product’s good growth outlook, offset by higher leverage and greater product concentration risk than pharmaceutical peers,” says Michael Levesque, analyst at Moody’s Investors Service.

FED CLEARS PATH
Led by AbbVie, issuers in the US high-grade bond market sold more than $22 billion on November 5, the eve of the US presidential election. High-grade corporates have benefited from the Federal Reserve’s decision in mid-September to stimulate the economy through the purchase of $40 billion per month of mortgage-backed securities. Some investors are unloading mortgage-backed bonds and reinvesting in corporate debt.

The US corporate bond market closed for three days owing to the hurricane. When it reopened on Thursday, November 1, some $12 billion of bonds were sold, including $3 billion in a three-part offering from BP Capital Markets.

The next day was the busiest Friday of the year to date in the market, with more than $15 billion of new issues, led by Verizon Communications’ $4.5 billion four-part sale.

Microsoft, the world’s largest software maker, sold $2.25 billion in a three-part offering of five-year, 10-year and 30-year debt. Other big investment-grade issuers in early November included Aetna, BMO, Caterpillar and General Dynamics.

Companies rushed to take advantage of low borrowing costs following October’s better-than-expected employment report, which could lessen the need for further Fed easing.

HIGH-YIELD ISSUANCE
Issuance in the high-yield bond market totaled $34.4 billion in October, the third-highest monthly total for the year to date, behind the record $44.6 billion in September and $37.2 billion in February, according to KDP Investment Advisors.

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