Taking advantage of a low-rate environment, corporations are flooding the market with debt.
Corporations are continuing to take advantage of low interest rates by issuing debt. Last week, according to S&P’s Leverage Commentary & Data, companies issued $25bn in debt and this week they’re again stuffing the market with whatever the market will buy.
The good news for treasurers is that the recent spate of issuance – reportedly mostly intended for paying off old debt – is being offered at such low rates (high-yield rates are averaging 3.79 percent) it’s not really increasing borrowing costs. That means there are likely zero concerns about pushing the envelope on domestic leverage that might trigger rating agency action.
One of the issuers on Monday was Google, which actually has a massive cash hoard, although much of it trapped overseas. But by raising money domestically through a debt offering, the cash-rich tech giant avoids the 35 percent tax hit it would suffer if it brought any of its overseas billions home (see related story here).
Google, according to reports, offered $1bn of notes due 2014 with a 1.25 percent coupon, $1bn of notes due 2016 with a 2.125 percent coupon, and $1bn of notes due 2021 with a 3.625 percent coupon. Google expects net proceeds of $2.97bn, which will likely pay off debt or help it continue its buying spree. In 2010 the company made 25 acquisitions.