GECC Offers $4B Of Non-Govt-Backed Debt As Market Heals
By Daniel at 6 January, 2009, 4:19 pm
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NEW YORK (Dow Jones)–U.S. investment-grade companies seized the opportunity to
sell debt Tuesday, including a $4 billion 30-year bond offering from General
Electric Capital Corp. that will not carry a government guarantee.
The bonds launched carrying a risk premium of 400 basis points over Treasurys,
which would give them a yield of approximately 7.07%.
On Monday, GECC, the financing arm of General Electric Co. (GE), sold $10 billion
of bonds backed by the Federal Deposit Insurance Corp. Some of those bonds
carried yields of just 1.66% and 2.22%. Since December, GECC has sold $16.5
billion in U.S. dollar-denominated bonds and EUR1.75 billion under the FDIC’s
temporary program that expires in June.
“GECC needs to raise capital, and if the market is willing to accept it, they are
content to issue,” said Scott MacDonald, director of research at Aladdin Capital
Holdings in Stamford, Conn.
GECC’s offering was expected to price later Tuesday.
This combined with other deals in the market brought total issuance to nearly $10
billion Tuesday.
Other corporate bond deals include $2 billion in 10- and 30-year notes from
TransCanada Pipelines and a $1.2 billion offering in five- and 10-year notes from
Devon Energy Corp. (DVN). Anheuser-Busch Inbev NV (ABI.BT), the world’s biggest
brewer, is also in the market with a three-part benchmark deal. Generally, use of
the proceeds was listed as going toward corporate purposes.
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. “It means funding is being made available to these firms.”
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.
“Once the new administration comes in, once we get the stimulus package going,
investors will be more aggressive in adding risk to their portfolios,” said
Stith.
Already, option-adjusted spreads on a benchmark Merrill Lynch corporate bond
index have tightened to 596 basis points as of Monday, compared with a peak of
656 basis points Dec. 5.
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