Intel Borrows Big, Saves Big


New issues in the U.S. dollar corporate bond market topped $30 billion last week. Who's doing all that borrowing, and what are they doing with the money? A few of the deals are profiled below.

Intel led the billion-dollar borrowers brigade with $6 billion spread over five-, 10-, 20-, and 30-year paper. The money's being used to fund a share buyback. Borrowing to buy shares may not seem like a smart move at first glance, but let's crunch some numbers.

  • Interest on the new debt: about $143 million per year

  • Dividend payout on $6 billion of Intel stock: about $268 million per year.

This deal nets Intel about $125 million a year in cash flow. Factor in taxes and consider future dividend increases, and the savings will get even bigger.

AT&T called up the bond market for $4 billion across three-, five-, and 10-year tranches. But for $4 billion, investors should expect a "Use of Proceeds" statement with a little more than "will be used for general corporate purposes."

ConocoPhillips drilled into the bond market for $1 billion each from five- and 10-year issues. The company is using some of the money to pay down commercial paper debt and some for general corporate purposes. Shortly after the bond filing, ConocoPhillips provided a clue on some of the general corporate purposes when it announced a $15.8 billion capital budget for 2013.

Hospital operator HCA Holdings tapped the bond market for $1 billion dollars. The money will be used to fund a special dividend. If this feels a little like deja vu, it's because HCA did the same thing back in October.

Sherwin-Williams sold $1 billion in debt split between five- and 30-year issues. The money will pay down commercial paper and go toward expanding Sherwin-Williams' footprint in Mexico with its Comex acquisition.

Humana joined the billion-dollar borrowers club with $1 billion spread over 10- and 30-year parts. The money is being used to finance the acquisition of Metropolitan Health Networks.

Plains All American Pipeline opened the valves on 10- and 30-year cash pipelines for $750 million. The money is being used to pay down credit facilities, which "may be reborrowed, as necessary, to fund our ongoing expansion capital program, future acquisitions, or for general partnership purposes." The reborrowing may hit sooner, rather than later, as Plains also announced it will be spending $500 million to acquire some oil rail terminals.

Historically low interest rates and investor demand for higher yields than cash or treasuries can provide continue to fuel corporate borrowing. Low rates lower the bar for capital expenses, acquisitions, and even things like share buybacks or dividends that might not make sense at higher rates. Companies are busy borrowing to lock in low rates. Investors should think carefully before taking the other side of those deals.

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