New bond supply spikes on Chinese financials and Walgreens issues

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Bank of China, Industrial & Commercial Bank of China, plump debt volumes in primary capital markets

In a rare week, emerging market (EMB) (VWO) borrowers were the most prolific in U.S. investment-grade bond markets. They accounted for 16.9%, or $8.7 billion, of the issuance in the week ending November 7. A couple of jumbo sales by Chinese (FXI) companies, Bank of China Ltd (3988.HK), and Industrial & Commercial Bank of China (1398.HK) pushed up volumes.

Bank of China’s Baa3/BBB+ rated $3 billion ten-year Tier 2 notes were issued at a coupon of 5% to yield 270 basis points over similar maturity Treasuries. The Industrial & Commercial Bank of China issued $2.25 billion in three tranches consisting of both fixed and floating rate debt.

Part 3

The Walgreens debt deal explained

Drugstore chain Walgreens Boots Alliance, Inc., a subsidiary of Walgreens (WAG), sold the largest debt last week. Walgreen issued $8 billion in a Baa2/BBB rated seven-tranche offering:

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  • $750 million in 1.5-year Floating Rate Notes issued at three-month LIBOR + 45 basis points
  • $750 million in 1.75% three-year notes issued to yield 80 basis points over similar maturity Treasuries
  • $1.25 billion in 2.7% five-year notes issued to yield 105 basis points over similar maturity Treasuries
  • $1.25 billion in 3.3% seven-year notes issued to yield 125 basis points over similar maturity Treasuries
  • $2 billion in 3.8% ten-year notes issued to yield 145 basis points over similar maturity Treasuries
  • $500 million in 4.5% 20-year notes issued to yield 145 basis points over similar maturity Treasuries
  • $1.5 billion in 4.8% 30-year notes issued to yield 170 basis points over similar maturity Treasuries

The company plans to use the proceeds to acquire 45% of Swiss pharmacy chain, Alliance Boots Gmbh. Walgreens already owns the remaining stake in the company.

ConocoPhilips $3 billion deal, largest energy sector debt sale
The energy sector accounted for almost 10% of the week’s issuance, or $4.9 billion. ConocoPhilips’ (COP) $3 billion notes sale was the largest energy sector issue. The $3 billion A1/A rated offering consisted of four tranches:

  • $750 million in 2.875% seven-year notes issued to yield 78 basis points over similar maturity Treasuries
  • $1 billion in 3.35% ten-year notes issued to yield 98 basis points over similar maturity Treasuries
  • $500 million in 4.15% 20-year notes issued to yield 105 basis points over similar maturity Treasuries
  • $750 million in 4.3% 30-year notes issued to yield 123 basis points over similar maturity Treasuries

The proceeds from the sale are earmarked for paying down existing debt and general corporate purposes.

Economic indicators, Treasury bond yields, and yields on corporate debt
The next few sections will discuss the economic indicators released last week and how they affected the Treasury yield curve. Corporate bond yields for high-quality debt usually take their cues from Treasury yields. Hence, it is important to stay informed about this aspect of the bond market.

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