McDonald’s, AMD Borrow Amid Bond Yields at 6-Year Low (Update1)
McDonald’s Corp., the world’s largest restaurant chain, and semiconductor maker Advanced Micro Devices Inc. sold debt as issuers took advantage of investor demand and the lowest yields in six years.
McDonald’s issued 10-year debt with a 3.5 percent coupon, the lowest in the U.S. market for at least 15 years, and notes due 2040. Sunnyvale, California-based AMD sold $500 million of 10-year securities to help fund a tender offer for convertible notes due 2015. Companies placed $22.1 billion of debt, down from $22.9 billion last week. Monthly volume was the highest since March.
Average yields on investment-grade debt sank to 4.001 percent, the lowest since March 2004, according to the Bank of America Merrill Lynch U.S. Corporate Master index. Lon Erickson, managing director at Santa Fe, New Mexico-based Thornburg Investment Management, said in a telephone interview yesterday that most deals were “way oversubscribed,” with demand carrying over to secondary trading.
“There seemed to be crazy amounts of demand for high grade, and the high-yield deals were pretty well-subscribed as well,” said Erickson, who oversees about $9 billion in fixed- income assets. “There seems to be multiples of cash out there just looking for a place.”
Junk Yields
Yields on speculative-grade bonds fell to 8.507 percent, the least since May 5, according to the Bank of America Merrill Lynch High Yield Master II Index. The extra yield investors demand to own high-yield, high-risk, or junk, debt instead of U.S. Treasuries rose 9 basis points to 657 basis points on July 30, paring the week’s decline to 2 basis points, the index data show. Investment-grade spreads narrowed 5 basis points for the week to 188 basis points after a 2 basis-point rise on July 30.
Junk debt is rated below Baa3 by Moody’s Investors Service and BBB- by Standard & Poor’s. A basis point is 0.01 percentage point.
AMD, the No. 2 maker of microprocessors behind Intel Corp., sold 7.75 percent 10-year notes at par, Bloomberg data show. Proceeds from the high-yield sale will be used to help fund a tender offer for as much as $800 million of AMD’s 6 percent convertible notes due 2015, the company said in a July 26 statement distributed by Business Wire.
Thomas J. Seifert, chief financial officer of AMD, said the company has been “really patient” waiting for the last couple of months of market turbulence to pass before selling debt.
‘Good Timing’
“We felt that the market was very good,” Seifert said. “Interest rates are at historically low levels, and we felt this was good timing.”
AMD last tapped the market in November, when it sold 8.125 percent 8-year notes at 89.796 cents on the dollar, Bloomberg data show.
McDonald’s sold $750 million in its two-part offering. Its $450 million of 3.5 percent notes due 2020 yielded 55 basis points more than similar-maturity Treasuries, Bloomberg data show. The Oak Brook, Illinois-based company also sold $300 million of 4.875 percent 30-year notes that paid an 85 basis- point spread, the data show.
Brian Cogliandro, managing director and head of U.S. syndicate at Mitsubishi UFJ Securities USA, said he expects spreads for high-grade issuers to “continue grinding tighter, and spread tightening to be more significant at the lower end of credit spectrum,” in an interview on July 28.
Corporate debt issuance surged to $90.4 billion in July, the most since March, when volume reached $139.8 billion, Bloomberg data show. Sales this week surpassed the year’s average of $19.7 billion.
The yield on the 10-year Treasury note, the market bellwether, fell to 2.905 percent from 2.994 percent.
Utility Bonds
Commonwealth Edison Co., the electric utility owned by Exelon Corp., sold 4 percent first-mortgage bonds at the company’s lowest 10-year coupon since the mid-1950s, it said in a statement distributed by PR Newswire.
“We knew there was a high amount of demand pent up and not a lot of utility paper coming out, so it made sense for us to come out as soon as we could after the blackout period,” said Joseph Trpik, chief financial officer at Commonwealth Edison, referring to the time preceding the company’s July 22 earnings announcement.
Commonwealth Edison’s $500 million of notes carried the third-lowest 10-year coupon ever for any utility issuer, according to the Chicago-based company’s statement. Proceeds will be used to repay the 4.74 percent first-mortgage bonds due Aug. 15, for pension plan contributions and for general corporate purposes, according to a prospectus filed with the Securities and Exchange Commission.
UBS AG and AT&T Inc. sold debt to lead $15.7 billion of investment-grade sales, Bloomberg data show. That’s above this year’s weekly average of $15.2 billion. High-yield sales reached $6.45 billion, above the $4.5 billion average.
To contact the reporter on this story: Katie Evans in New York at kevans28@bloomberg.net.
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