Norfolk Southern Plans First 100-Year Bonds Since '05

Norfolk Southern Corp. plans to sell $100 million of 100-year bonds in a reopening, the first offering of such debt since 2005, as companies take advantage of record-low borrowing costs to lock in long-term funding.

The bonds may be sold as soon as today and yield about 6 percent, according to a person familiar with the transaction, who declined to be identified because terms aren’t set. The fourth-largest U.S. railroad issued $300 million of 6 percent debt due 2105 in March 2005, the last sale of 100-year bonds in U.S. dollars, according to data compiled by Bloomberg.

Norfolk Southern is marketing the debt as borrowing costs for investment-grade companies fall to record lows. The average absolute yield on investment-grade debt maturing in more than 15 years declined to 5.43 percent on Aug. 19, according to Bank of America Merrill Lynch, the lowest since the daily index tracking such bonds began in 1986. Companies may sell more 100-year debt, said Anthony Valeri, a market strategist at LPL Financial Corp., which oversees about $277 billion.

“The fact that you can lock in funding for beyond 30 years is something I think corporations are finding attractive, taking a very long-term view of the path of interest rates,” said Valeri, who’s based in San Diego. “They’re probably thinking it’s a relatively attractive cheap source of funds for the long term.”

Original Offering

Norfolk Southern, based in Norfolk, Virginia, previously sold its 2105 100-year bonds at par to yield 137 basis points more than similar-maturity Treasuries, Bloomberg data show. A basis point is 0.01 percentage point.

The risk on 100-year bonds is similar to perpetual securities, said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia.

“Long-term yields are at all-time lows, so it makes a good reason for issuers to sell long-term debt,” LeBas said. “I don’t think Norfolk would come out with such a different structure than has been in the market if they didn’t have good interest to begin with.”

The absolute yield on overall investment-grade debt dropped to 3.79 percent last week, according to Bank of America Merrill Lynch’s U.S. Corporate Master Index, also the lowest since the daily index began.

‘Very Low Rates’

“The bottom line is they’re interested in locking in funding at very low rates,” LeBas said in a telephone interview. “As we saw a couple of weeks ago with Johnson & Johnson’s record-low 10- and 30-year issue, rates are low for issuers in the long end of the curve as well as the short end.”

“We decided to reopen these 100-year bonds based on the current low interest rates and the strong appetite among buyers for them,” said Robin Chapman, a company spokesman.

Johnson & Johnson, the New Brunswick, New Jersey-based maker of products including Tylenol and Listerine, sold $1.1 billion of bonds at the lowest interest rates on record for 10- year and 30-year securities on Aug. 12, according to Citigroup Inc. data going back to 1981.

The drugmaker sold $550 million of 2.95 percent, 10-year notes and the same amount of 4.5 percent, 30-year bonds, according to data compiled by Bloomberg.

The three biggest U.S. railroads are Berkshire Hathaway Inc.’s Burlington Northern Santa Fe LLC, Union Pacific Corp. and CSX Corp., Bloomberg data show.

To contact the reporters on this story: Sapna Maheshwari in New York at sapnam@bloomberg.net; Tim Catts in New York at tcatts1@bloomberg.net.

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.