Last Week's Junk and Near-Junk
Last week's $33 billion in new corporate bond issues looks tame compared with the previous record week, but it's a strong number relative to the past few months. Let's review one lower-rated investment-grade deal and four high-yield -- or junk -- issues.
Spectra Energy sold $1.9 billion spread over five-year, 2.95%; 10.5-year, 4.75%; and 30-year, 5.95% paper.
The issues were rated investment grade, a few clicks above junk. The new money will pay for part of Spectra Energy's drop-down of its U.S. transmission, storage, and liquid assets to Spectra Energy Partners, its master limited partnership.
The next four deals are all rated high-yield, also called junk.
Air Canada flew 6.75%, first lien, six-year; and 8.75%, second lien, 6.5-year notes totaling $700 million. The company also issued C$300 million of six-year notes and floated a $400 million credit facility. The money is being used to buy back several higher-rate notes denominated in U.S. and Canadian dollars.
Sirius XM broadcast $650 million of 5.875% seven-year notes and will be using the money to redeem outstanding 7.625% notes due in 2018.
Walter Energy mined $450 million with a six-year, 9.5% note issue. There was enough demand to upsize the offering from $350 million. Walter is using $250 million to pay down a term loan, with the rest going toward general corporate purposes -- which will need to have a pretty good return to clear the 9.5% interest rate on the notes.
Hercules Offshore struck cash with a $300 million, eight-year, 7.5% note issue. That percentage looks steep at first glance, but the money is funding a tender offer for 10.5% notes due in 2017. That's not as much savings as appears at first glance, though, as Hercules' tender offers a 5.875% premium to par for the existing notes.
Last week's bond issues wouldn't have had time to be affected by the Federal Reserve's "no tapering" announcement. However, corporate borrowing has definitely picked up over the past two weeks. The Fed statement makes it clear that cheap money will be available for some time, and I expect corporate borrowers will take advantage of it as long as rates are low and demand for debt paper is strong.
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The article Last Week's Junk and Near-Junk originally appeared on Fool.com.Russ Krull and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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