Wednesday, December 3, 2008
H-P, Citi Debt Offerings Bring in Billions
By ROMY VARGHESE, KELLIE GERESSY and MATTHEW COWLEY U.S. companies such as Hewlett-Packard Co. and banks like Citigroup Inc. flooded the credit markets with more than $10 billion in new debt Tuesday, as investors sought safety in offerings from banks backed by the government and juicy yields from nonguaranteed bonds. Though the flood of new issuance indicates a slow opening of credit markets, nonfinancial companies that don't qualify for the Federal Deposit Insurance Corp. program still must pay high interest rates north of 6% to get deals done. That is likely to block many companies that can't afford such high financing costs. "The issuers are higher-rated issuers or guaranteed by Uncle Sam so it's not everybody coming to market," said Scott MacDonald, director of research at Aladdin Capital Holdings. "It won't change until the economy recovers or there is some signal that it is recovering." Single-A-rated Hewlett-Packard raised $2 billion in the investment-grade corporate-bond market to fund its acquisition of Electronic Data Systems LLC, offering a hefty yield of 6.227% on its five-year bonds. Meanwhile, single-A-rated Caterpillar Inc. sold $1.5 billion of bonds in a three-part offering, with the largest portion -- $900 million of 10-year bonds -- offering investors a premium of 5.25 percentage points over comparable Treasurys. The 10-year Treasury yielded 2.691% Tuesday. Consolidated Edison Inc., meanwhile, sold $600 million of 10-year bonds at a yield of 7.176%. Citigroup joined the line of major U.S. banks raising funds under the FDIC program that guarantees such debt until June 2012. The bank sold $5.5 billion of such bonds, bringing the amount raised in the last week to $32.6 billion in U.S. dollar-denominated debt. Citi, because it enjoys government backing, paid only 1.884 percentage points over Treasurys on its $3.75 billion three-year bonds. Later this week, guaranteed bond deals are anticipated from General Electric Capital Corp., the financing arm of General Electric Co. and Wells Fargo & Co. Snapping up the bank deals is an array of buyers -- municipalities, pension funds, insurance companies, money managers and those who typically invest in the debt from government-sponsored enterprises. While the majority of those buying the new bonds are investors who traditionally buy Treasurys and agency debt, "there is a good incremental rump of demand from corporate buyers," said Jonathan Fine, managing director on Goldman Sachs's investment-grade syndicate desk. Goldman, which was the first bank to sell these guaranteed bonds last week, sold another lot of $500 million Monday. "There's a big rush to be in the market because there's no better way for cheaper funding," said Kevin Giddis, head of fixed income at Morgan Keegan in Memphis, Tenn.