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Hewlett-Packard Leads Two-Day Surge of Corporate Bond Issuance
Hewlett-Packard Co. and American Express Co. led companies marketing at least $16.6 billion of debt today, tapping credit markets with investment-grade borrowing costs near the lowest on record.
If companies sell all the debentures being marketed today, two-day sales would reach $33 billion, the most since November 2006, according to data compiled by Bloomberg. Yesterday was the busiest day for U.S. corporate bond issuance since $18.8 billion of debt was sold Feb. 4.
“It is quite understandable that a lot of finance directors of companies are saying ‘I really must take advantage of these very low rates,’” said Andrew Milligan, head of strategy at Standard Life Investments Ltd. in Edinburgh, which oversees 143 billion pounds ($221 billion). “The ability of companies to keep debt under control is very high and the corporate bond default rate is at quite low levels now.”
Companies are selling bonds with yields on investment-grade debt falling to 3.83 percent yesterday, according to Bank of America Merrill Lynch’s U.S. Corporate Master index, near the record 3.74 percent on Aug. 24, the lowest in the measure’s history dating to October 1986.
American Express, the largest credit-card issuer by payments, sold $2 billion of five-year debt; Energy Future Holdings Corp.’s Oncor unit, the Dallas-based utility, sold $475 million of 30-year notes; and Teck Resources Ltd., Canada’s biggest base-metals producer, sold $700 million of debt in two parts, Bloomberg data show.
Companies sold $34.1 billion in the two days ended Nov. 16, 2006, Bloomberg data show.
Three-Part Offering
Hewlett-Packard, the world’s biggest computer maker, split its $3 billion sale between $800 million of two-year floating- rate securities and $1.1 billion each of three- and five-year fixed-rate debt. Proceeds may be used to repay outstanding commercial paper and to finance acquisitions.
Hewlett-Packard, based in Palo Alto, California, issued debt after Dell, the third-largest personal-computer maker, sold $1.5 billion of notes in three parts yesterday. Hewlett-Packard offered to buy 3Par Inc. for about $2.3 billion on Sept. 2, ending an 18-day bidding war with Dell. Hewlett-Packard also filed a lawsuit yesterday to stop former Chief Executive Officer Mark Hurd from working at Oracle Corp.
‘Just Enamored’
“The credit quality of HP is relatively stable despite all these factors swirling around,” said Guy LeBas, chief fixed- income strategist and economist at Janney Montgomery Scott LLC in Philadelphia. “It is a little curious why they’d be issuing debt with more than $14 billion of cash on hand. The only thing that makes sense is they’re just enamored with the cheap issuance cost.”
Hewlett-Packard’s two-year floating-rate notes yield 12.5 basis points more than the three-month London interbank offered rate, the three-year debt yields 50 basis points more than similar-maturity Treasuries, and the five-year notes pay a spread of 70 basis points, Bloomberg data show. Libor, a lending benchmark, was set at 0.293 percent today. A basis point is 0.01 percent.
Hewlett-Packard had almost $15 billion in cash and short- term investments at the end of July, according to the company’s financial statements. It’s rated A2 by Moody’s Investors Service and an equivalent A by Standard & Poor’s.
Gina Tyler, a company spokeswoman, confirmed the bond deal but declined to comment further.
Hewlett-Packard last sold bonds in May 2009, issuing $2 billion of debt split among two-year fixed- and floating-rate notes and debt due in August 2012, Bloomberg data show.
Oracle, the world’s second-biggest software company after Microsoft Corp., said on Sept. 6 it would hire Hurd. Hewlett- Packard said the appointment may cause HP to lose customers, trade secrets and its competitive advantage.
In the second quarter, Dell ranked third in the global PC market for shipments, following Hewlett-Packard and Acer Inc., according to Gartner Inc.
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.
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