Wednesday, January 7, 2009

GE Unit Swims Solo in Latest Issue

General Electric Capital Corp. opted to forgo government guarantees when it sold $4 billion of 30-year bonds Tuesday in a sign that the binds around credit markets are loosening. The triple-A-rated finance unit of General Electric Co. paid nearly 7% yields to entice investors, according to a person familiar with the deal, significantly above the interest rates charged on debt guaranteed by the Federal Deposit Insurance Corp. GECC raised $10 billion of such FDIC-backed debt just the day before with some of the bonds carrying yields of 1.66% and 2.22% at pricing. Since December, GECC has sold $16.5 billion in U.S.-dollar-denominated bonds and €1.75 billion ($2.37 billion) under the FDIC's temporary program that expires in June. The success of those deals, plus recent interest from several investors for a longer-term bond without government backing, spurred the marketing of the 30-year issue Tuesday. "We became confident that as the markets thawed, there would be appetite for financial institutions in general and GECC in particular without the credit enhancement," said Paul Spivack, global head of investment-grade syndicate at Morgan Stanley, one of the underwriters. There was $6 billion in orders before books were closed, and 250 separate accounts were involved. "Demand was extraordinary," Mr. Spivack said, adding this was the largest 30-year bond deal executed in seven years. The GECC offering combined with other deals in the market brought total investment-grade bond issuance to nearly $10 billion Tuesday. TransCanada Pipelines sold $2 billion in 10- and 30-year notes to the market while Devon Energy Corp. sold $1.2 billion offering in five- and 10-year notes. Anheuser-Busch InBev NV, the world's biggest brewer, was also in the market with a three-part benchmark deal. The fact that companies can access both the corporate market and the FDIC-backed sector shows conditions are easing, said Daniel Sheppard, director at Deutsche Bank Private Wealth Management. "Anything that can be brought to market at reasonable rates can be considered a victory," he said. Corporate bonds, with yields ranging from 7% to 10%, are appealing to a "broad swath of the investor universe" from pension funds to funds that buy several kinds of assets such as stocks, said Wilmer Stith, vice president and portfolio manager at MTB Funds in Baltimore. But risk premiums, or spreads, will drop as more investors weary of low Treasury yields jump in and as sentiment improves, he said. Already, option-adjusted spreads on a benchmark Merrill Lynch corporate bond index have tightened to 5.96 percentage points as of Monday, compared with a peak of 6.56 points Dec. 5.

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