Wednesday, December 17, 2008

Deere Gets Backing in $2 Billion Debt Offer

The Federal Deposit Insurance Corp. backstopped $2 billion of debt issued by farm-equipment maker Deere & Co. on Tuesday, a tangible sign of the government's unprecedented push into the private markets. The offering, which is guaranteed by the FDIC's Temporary Liquidity Guarantee Program allowed Deere's credit arm to pay under 3% interest on its borrowing. That saved the firm tens of millions of dollars, compared with over 5% yields on some of its current, non-FDIC-backed debt, according to MarketAxess. The credit unit helps finance farmers' purchases of tractors and other machines. The deal comes as the Federal Reserve threw all of its weight behind its efforts to spur the economy and stem a deflationary spiral. The central bank moved interest rates to near 0% and pledged to use "all available tools" to combat a deepening recession. The step sent investors further into the safety of Treasury bonds. The 10-year Treasury rose in price by 1 19/32 points,or $15.94 per $1,000 invested, to yield 2.4%. T-bills that mature in one month remain at yields close to zero. View Full Image Bloomberg News/Landov BOND BUILDING: A line of John Deere utility tractors and equipment on sale in Cuba City, Wis. "We are an eligible U.S. savings-and-loan holding company and, therefore an eligible entity and a participant under the TLG program by virtue of not electing to opt out of the TLG program," Deere said in its bond prospectus. Thus far, Deere is an unusual entrant to this program, though General Electric Capital Corp., which also finances commercial-lending operations, and American Express Co., which funds consumer credit, also have used the program to access funds. Most of the borrowers have been large banks like Goldman Sachs Group Inc., Morgan Stanley, Citigroup Inc. and Bank of America among others. But companies such as Deere -- which maintain small, industrial banks used to finance consumer purchases -- will increasingly tap FDIC-backed markets. Over time that will makes the U.S. government a guarantor of debt used to make loans for everything from tractors and cars to credit cards and construction projects. Absent FDIC-backing, credit markets remain mostly closed. They are extremely expensive for even the highest-quality borrowers, with bonds pricing at more than 7% interest. Investors also are flocking to this new FDIC insured debt market where they can buy bonds with guarantees as good as Treasurys but at three times the yields. By comparison, the three-year Treasury bond ended Tuesday at 0.9%. Credit-rating companies rate all FDIC-backed debt triple-A, the highest credit ratings available. Over $67.9 billion of the bonds backed by the FDIC have been sold since Goldman Sachs was first with a $5 billion offering Nov. 25. Issuers have until June 30, 2009 to sell the debt, which must mature in three years or less.

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