Deals overview by sector
Financials sector firms dominated issuance. They accounted for 33.8% of the week’s volumes of $28.2 billion. These included debt sales by domestic and overseas financial institutions. Major issuers included Wells Fargo (WFC) and TIAA Asset Management—at $2 billion each, the Toronto-Dominion Bank—at $1.75 billion, and Lloyds Banking Group PLC (LYG)—at $1 billion.
Financial institutions frequently take recourse to debt markets. They need to maintain sufficient levels of capital—mandated by financials sector regulators.
Hutchison Whampoa’s $3.5 billion issue
Emerging market (or EEM) borrowers were unusually prolific issuers last week. They accounted for 26.5% of the weekly volumes, or $7.5 billion. Issuance in this category spiked due to a $3.5 billion mega issue by Hong Kong-based telecommunications company, Hutchison Whampoa.
The two-tranche A3 or A-rated U.S. dollar bond sale was also the largest of the week. It consisted of:
- $2 billion in three-year notes at a coupon of 1.625%—to yield 88 basis points over similar maturity Treasuries
- $1.5 billion in ten-year notes at a coupon of 3.625%—to yield 135 basis points over similar maturity Treasuries
The company also simultaneously raised EUR1.5 billion in seven-year notes at a coupon of 1.375%.
Other major deals by overseas issuers included BP’s $2 billion notes sale. BP plans to use the proceeds for general corporate purposes.
Other domestic corporates raising debt included Boeing (BA) at $0.85 billion, Procter & Gamble (PG) at $1 billion, IBM (IBM) at $1.1 billion, and Whirlpool at $650 million. The proceeds from these sales are earmarked for general corporate purposes. This could include providing funding for share buybacks, repaying older debt, or funding acquisitions.
In particular, IBM has a history of buying back its own shares for more than ten years.
Another high-profile domestic borrower last week was Ford (or F) at $1.65 billion.
KLA-Tencor’s $2.5 billion debt deal explained
Industrials firm KLA-Tencor (or KLAC) raised $2.5 billion in a five-tranche bond sale last week. The Baa2 or BBB-rated issue consisted of:
- $250 million in three-year notes at a coupon of 2.375%—to yield 150 basis points over similar maturity Treasuries
- $250 million in five-year notes at a coupon of 3.375%—to yield 180 basis points over similar maturity Treasuries
- $500 million in seven-year notes at a coupon of 4.125%—to yield 212.5 basis points over similar maturity Treasuries
- $1.25 billion in ten-year notes at a coupon of 4.65%—to yield 237.5 basis points over similar maturity Treasuries
- $250 million in 20-year bonds at a coupon of 5.65%—to yield 262.5 basis points over similar maturity Treasuries
KLAC plans to use the proceeds to pay down existing debt, to partially fund a special dividend of ~$2.8 billion to shareholders, and for general corporate purposes.