PepsiCo Leads U.S. Bond Sales as Borrowing Costs Decline

PepsiCo Inc. (PEP) led companies selling $11.45 billion of dollar-denominated debt today after relative yields on U.S. corporate bonds fell to the lowest in a year.

The world’s biggest snack food maker issued $2.5 billion of debt in a three-part sale, while Kinder Morgan Energy Partners LP (KMP), the largest U.S. natural gas distributor, sold $1.25 billion of bonds, according to data compiled by Bloomberg. PepsiCo’s sale included $900 million of 0.7 percent, three-year notes that yielded 33 basis points more than similar-maturity Treasuries.

The offerings brought sales this week to $30.6 billion, the busiest start since $31.6 billion was sold in the three days ended July 11, Bloomberg data show. Companies are borrowing more as the extra yield investors demand to hold corporate debt rather than government securities drops.

“The market’s still pristine and there’s still a lot of cash around, but the pool of high-quality money is getting thinner by the day as spreads come in,” Timothy Cox, executive director of debt capital markets at Mizuho Securities USA Inc. in New York, said in a telephone interview.

Investors are asking for a bigger discount on new bonds relative to outstanding debt to participate in offerings, Cox said. PepsiCo’s $750 million of 0.75 percent, three-year notes due March 2015 traded at a 26 basis-point spread at 4:29 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. That’s 7 basis points less than on the three-year notes that PepsiCo sold.

Spreads Drop

The spread on bonds from the riskiest to the most creditworthy borrowers declined 2 basis points yesterday to 268 basis points, the lowest since Aug. 3, 2011, according to the Bank of America Merrill Lynch U.S. Corporate & High Yield Master index.

“There’s still a lot of cash being put to work,” Cox said.

PepsiCo’s offering also included $1 billion of 1.25 percent, five-year notes and $600 million of 3.6 percent, 30- year bonds, Bloomberg data show. Houston-based Kinder Morgan Energy issued $625 million each of 3.45 percent, 10.5-year debt at 185 basis points more than Treasuries and 5 percent, 30-year bonds at a 230 basis-point spread.

Community Health

The average yield on investment-grade corporate debt dropped to 3.1 percent as of yesterday, from 3.9 percent at the end of 2011, Bank of America Merrill Lynch index data show. Corporate issuers have sold $829 billion of debt in the U.S. so far this year, increasing 6 percent from the same period last year, Bloomberg data show.

Franklin, Tennessee-based Community Health Systems Inc. (CYH), the second-largest U.S. hospital chain, sold $1.6 billion of notes due in August 2018 to refinance debt, the data show.

ServiceMaster Co., the owner of the TruGreen landscaping and Terminix pest control businesses, sold $1 billion of 6.125 percent, eight-year notes, Bloomberg data show. The size of the transaction was more than tripled from $300 million earlier in the day, according to a person familiar with the transaction who asked for anonymity as the details were private.

To contact the reporter on this story: Zeke Faux in New York at zfaux@bloomberg.net

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

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