Last Week in Bonds

New corporate bond issues took a breather last week after a strong September and busy opening week of October. Only a little over $15 billion in new paper hit the markets last week. One continuing trend is the issuing of dollar-denominated debt by international borrowers. More than $6 billion was issued last week.

The week's biggest borrower was Mizuho Corporate Bank -- a division of Mizuho Financial Group (NYS: MFG) -- with $2.5 billion in five and 10-year private issues. There was no SEC filing or press release with plans for the money. The big Japanese financial sports a single-digit P/E ratio and trades at only 60% of book value. Numbers like that can mean either value or value trap. Mizuho Financial is going on My Watchlist for more research.

Back in the U.S., CVR Energy (NYS: CVI) pumped out $500 million of high-yield, 10-year paper -- if you can call 6.5% a high yield. The money is being used for a tender offer to purchase existing 9% debt. Assuming the tender offer is successful, the lower interest rate will save the company more than $7.5 million per year.

Northeast Utilities (NYS: NU) subsidiary NSTAR Electric juiced up with $400 million of 2.375% 10-year debt. The money is being used to pay off maturing 4.875% debt. That's a savings of $10 million per year in interest expenses.

Refinancing debt is a popular theme. Southern Company (NYS: SO) subsidiary Alabama Power generated $400 million of three-year notes with a low-voltage coupon rate of 0.55%. The money is being used to redeem $200 million of 6% notes. The other $200 million will be used for "general corporate purposes, including the Company's continuous construction program." The debt-servicing cost on the $400 million of new paper will be nearly $10 million per year less than the servicing costs for the $200 million of 6% paper being redeemed.

Deere (NYS: DE) raised some green when its John Deere Capital Corporation planted $500 million each of two-year and seven-year notes. There was nothing beyond "general corporate purposes" in the SEC filings for the debt.

Whether it's driven by Operation Twist, QE3, weak economies, or the perceived safety of bonds, today's low interest rates are saving companies quite a bit of money. Millions of dollars are going straight to the bottom line just by refinancing higher-coupon debt. Even for high yield -- the bond market equivalent of subprime -- interest rates aren't much higher than investment-grade issues of a few years ago.

Today's low rates also lower the bar for acquisitions, share buybacks, or capital improvement projects. Since issuing debt seems to be a good deal for many borrowers, I have to wonder whether it's such a good deal for the lenders.

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