A rush of corporate funding, even at record low rates, begs the question.
Stellar corporate credits, in particular, are enjoying high times in funding markets as debt investors starved of supply oversubscribe to their issues at extremely good, even record low, rates.
As an example: Microsoft sold another $4.75bn of bonds yesterday in a four-part offering, including three- and five-year maturities at the lowest coupons on record. According to Bloomberg: “The company’s $1bn of 0.875 percent notes due in 2013 and $1.75bn of 1.625 percent debt maturing in 2015 have the lowest interest rates of more than 3,500 securities in the Barclays Capital US Corporate Index of investment-grade company debt.” Microsoft also sold $1bn each of 10- and 30-year bonds, tying a record set by Johnson & Johnson last month on its 30-year coupon of 4.5 percent. Nonetheless, prices shot up on the first day of trading as a sign of high demand even at such low yields.
Wanting to feel the love
Even with record low rates, the word oversubscribed seems to accompany most issues, even down the credit spectrum from Triple-A, where Microsoft is currently. The same can be said in the syndicated loan markets, where corporates are lining up joint leads and multiple bookrunners to ensure, right out of the gate, large uptake for their bank financings.
At some point someone will be asking, despite the financing riches, if treasurers are letting the positive signals of oversubscribed issues, and latent fears of access drying up again, stay their negotiating demands. It used to be that treasury was about grubbing for basis points, not wanting to feel the love of fixed income investors and underwriters.
Clearly no firm can afford to be too greedy in this environment. But if Microsoft, along with fellow US Triple-A’s ADP, J&J, and Exxon Mobil seem to be willing to leave money on the table, when “there’s virtually no supply of that debt” (as Guy Lebas, a fixed income strategist with Janney Montgomery Scott told Bloomberg) and banks are sitting on the sidelines by refraining from new issuances, you have to wonder if Gordon Gekko should have been let out of prison sooner.