Johnson & Johnson Plans $3.75 Billion, Six-Part Debt Sale

Johnson & Johnson (JNJ), one of four U.S. nonfinancial borrowers with a top credit ranking, plans to sell $3.75 billion of bonds to help pay back short-term borrowings as investment-grade yields fall to a six-month low.

J&J is joined by McDonald’s Corp. (MCD), HSBC Bank Plc and Caterpillar Financial Services Corp. in marketing at least $16 billion of bonds that may be priced today, after $10.3 billion of sales yesterday, according to data compiled by Bloomberg. Issuance reached $36.3 billion last week, the most since the period ended April 1, when $36.4 billion was raised.

J&J is tapping the corporate bond market to pay back commercial paper following similar sales in the past month by Google Inc. (GOOG), General Mills Inc. (GIS) and CVS Caremark Corp. (CVS) New Brunswick, New Jersey-based J&J may be seeking a more stable capital structure as it faces recalls and pays for its $21.3 billion acquisition of Synthes Inc., according to Janney Montgomery Scott LLC’s Jody Lurie.

“They probably want to get rid of the short-term stuff and extend out debt while they can, and keep their capital structure a little more stable,” Lurie, a corporate credit analyst in Philadelphia, said. “Companies in general are taking this opportunity to extend debt maturities.”

Breakdown of Offering

J&J, rated AAA by Standard & Poor’s and Moody’s Investors Service, plans to sell at least $500 million of two-year, floating-rate notes, $1 billion of three-year, fixed-rate debt, $600 million of three-year, floating-rate securities, $900 million of five-year notes, $450 million of 10-year bonds and $300 million of 30-year debt, said a person with knowledge of the transaction.

The three-year fixed notes may pay 33 basis points more than similar-maturity Treasuries, the five-year debt may pay a 43 basis-point spread, the 10-year notes may offer 55 basis points above benchmarks, and the 30-year bonds may yield a 68 basis-point spread, said the person, who declined to be identified because terms aren’t set.

The company’s two-year notes may be priced with no premium to the three-month London interbank offered rate, and the three- year floating-rate debt may offer 9 basis points above the lending benchmark for banks, the person said. Three-month Libor was set at 0.26 percent today.

As of April 3, the maker of Acuvue brand contact lenses and Neutrogena products had $8.2 billion of commercial paper outstanding with a weighted average interest rate of 0.246 percent, and weighted maturity of about 55 days, J&J said today in a regulatory filing that didn’t specify the size or timing of the sale.

Tumbling Yields

Absolute yields on investment-grade debt tumbled to 3.765 percent yesterday, the lowest since Nov. 12, according to Bank of America Merrill Lynch index data.

J&J had its outlook cut last month to “negative” from “stable” by Moody’s as it plans to pay for Synthes, the largest acquisition in the company’s 125-year history. The company is “incurring new debt during a period of increased operating challenges including product recalls,” Michael Levesque, a New York-based analyst, wrote in an April 27 report.

J&J last tapped the debt market in August, as the company took advantage of “favorable terms in the capital markets,” according to its most recent quarterly filing. J&J’s debt at the end of the first fiscal quarter 2011 was $17.8 billion from $12.1 billion a year earlier, according to the filing.

Commercial paper typically matures within 270 days and is used to finance everyday activities such as payroll and rent.

Repaying Commercial Paper

Google, the world’s biggest Internet-search company, sold $3 billion of bonds yesterday in a debut offering; cereal-maker General Mills issued $700 million of notes last week; and CVS Caremark offered $1.5 billion of securities on May 9, Bloomberg data show. The companies all cited commercial paper repayment as a use of proceeds, the data show.

J&J’s $550 million of 2.95 percent, 10-year notes issued in August were priced to yield 43 basis points more than similar- maturity Treasuries, Bloomberg data show. The debt traded on May 13 at 96.8 cents on the dollar to yield 3.36 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

To contact the reporter on this story: Sapna Maheshwari in New York at sapnam@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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.