Corporate Bond Coupons Decline to Record Lows With Sales From IBM, Expedia

Expedia Inc., the biggest Internet travel agency, and International Business Machines Corp., the world’s biggest computer services provider, sold bonds with coupons at historic lows this week.

Expedia sold 10-year notes at its lowest coupon for any maturity and IBM, based in Armonk, New York, issued 1 percent three-year notes that carry the lowest interest rate of the more than 3,400 securities in the Barclays Capital U.S. Corporate Index of investment-grade company debt.

Debt sales reached $35.9 billion this the week, the most since March 26, when issuance totaled $39 billion. Borrowers took advantage of what Andrew Karp, head of investment grade debt syndicate, the Americas, at Bank of America Merrill Lynch, called “outstanding” demand.

“Books have been multiple-times oversubscribed,” Karp said. “It’s not uncommon to have deals five to eight times covered. Given the depth of demand, this is a very benign environment for spreads.”

The extra yield investors demand to own investment-grade debt instead of U.S. Treasuries fell 1 basis point to 187 basis points, according to the Bank of America Merrill Lynch U.S. Corporate Master index. Average yields on the debt increased half a basis point to 4.006 percent from the lowest since March 2004. The yield on the 10-year Treasury note, the market Bellwether, fell 0.4 basis point to 2.901 percent.

Newell, Expedia

Newell Rubbermaid Inc., the maker of Calphalon cookware and Sharpie markers, and Expedia had record-low coupon interest rates on their bonds. Atlanta-based Newell Rubbermaid sold 10- year notes that carry the company’s cheapest coupon for debt of similar maturity since at least 1976, according to Bloomberg data that goes back to that year.

Expedia tapped the market for the first time in more than two years, selling $750 million of notes in a boosted offering after earlier marketing $500 million.

“Our hope had been to possibly exceed the $500 million but we wanted to make sure demand was there in the market,” said Chief Financial Officer Michael Adler. “We found significant amounts of excessive demand which allowed us to upsize to $750 million.”

The 5.95 percent notes yielded 300 basis points more than similar maturity Treasuries and were the company’s largest offering, according to data compiled by Bloomberg.

Expedia last sold debt in June 2008, when it issued $400 million of 8.5 percent notes due 2016. The Bellevue, Washington- based company’s next lowest coupon is on its $500 million of 7.456 percent notes due 2018, Bloomberg data show.

Junk Spreads Narrow

High-yield, high-risk, or junk, spreads declined 6 basis points to 651 basis points, according to the Bank of America Merrill Lynch High Yield Master II Index. Yields on the debt fell 5 basis points to 8.46 percent, the least since May 5, the index data show. 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.

“Deals seem to be pricing with smaller and smaller concessions” to existing issues, Karp said. “That’s a function of significant amounts of demand.”

IBM and Xcel Energy Inc. led $30.6 billion of investment- grade sales, Bloomberg data show. That’s 193 percent above this year’s weekly average of $15.9 billion. High-yield sales reached $5.2 billion, above the $4.6 billion average.

Utility Bonds

Xcel, the Minneapolis-based owner of utilities that operate in eight states, sold the cheapest 30-year bonds in the U.S. market in at least 15 years, according to data compiled by Bloomberg. Xcel’s Northern States Power Co. issued $250 million of 4.85 percent, 30-year securities and $250 million of 1.95 percent, five-year notes, Bloomberg data show.

“You’re not getting much of a concession” on some of the new debt, said Rajeev Sharma, who oversees $1.4 billion of investment-grade credit at First Investors Management in New York. “At least you’re getting something - some chance for a compression” in secondary-market spreads.

Newell Rubbermaid sold $550 million of 10-year notes that pay less than half the coupon of its decade-long debt issued last year, Bloomberg data show.

The 4.7 percent debt Bloomberg yielded 175 basis points more than similar-maturity U.S. Treasuries, the data show. Treasurer Dale Metz said “very strong” demand of four to five times oversubscription at the time of pricing drove pricing for the offering.

“We hoped to get a low 5 percent coupon and crashed through the 4 percent barrier and ultimately down to 4.7 percent,” Metz said.

Proceeds will help fund a tender offer for Newell’s 10.6 percent notes due in 2019 that the company sold in March 2009 and the repurchase of $500 million of stock, the company said in an Aug. 2 statement distributed by Business Wire.

To contact the reporter on this story: Katie Evans in New York at kevans28@bloomberg.net.

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