Gold Drops to $1,200/oz for First Time Since June in New York
Wellpoint Leads Busiest Start to Week in Bond Sales Since March
Wellpoint Inc. (WLP) and Principal Financial Group Inc. (PFG) are leading companies selling $28.9 billion of dollar-denominated bonds in the busiest start to a week in six months as yields touched unprecedented lows.
Wellpoint, the second-biggest U.S. health insurer, is planning a $3.25 billion, four-part bond issue and Des Moines, Iowa-based Principal is raising $600 million as offerings reach the most since $30.2 billion in the two-day period ending March 6, according to data compiled by Bloomberg. Sales have already exceeded the $13.4 billion issued during the past two weeks.
Companies rushed to market as yields on investment-grade bonds fell below 3 percent for the first time. Borrowers are coming to market ahead of a meeting by the European Central Bank, where officials are expected to provide details on a bond- buying proposal.
“It’s certainly a tidal wave of issuance,” Edward Marrinan, macro credit strategist at Royal Bank of Scotland Plc in Stamford, Connecticut, said in a telephone interview. “With all-in funding costs at or near record-low levels, corporate treasurers are unlikely to be second-guessed for borrowing at these levels.”
Yields on investment-grade securities reached a record low 2.98 percent on Aug. 31, falling below 3 percent for the first time, before climbing back to 2.99 percent yesterday, according to the Bank of America Merrill Lynch U.S. Corporate Master index. The extra yield investors demand to own company bonds rather than government debentures was at 185 basis points, or 1.85 percentage points.
Wellpoint, the operator of the Blue Cross and Blue Shield insurance plans, is offering three-, five-, 10- and 30-year notes to help fund its $4.9 billion acquisition of Amerigroup Corp., according to a person familiar with the transaction.
The company’s $625 million of three-year notes may be sold at a yield of 95 basis points more than similar-maturity Treasuries, while its $625 million of five-year notes may have a relative yield of 130 basis points, said the person, who asked not to be identified because terms aren’t set. Wellpoint’s $1 billion of 10-year notes may be sold at a 175 basis-point spread and its $1 billion of 30-year bonds at 200 basis points, the person said.
Fitch Ratings today downgraded Wellpoint’s long-term issuer default rating to A-, four levels above speculative grade, and its issue ratings to BBB+, three levels above high-yield, citing increased leverage from the acquisition, the ratings company said in a release today.
European Central Bank President Mario Draghi’s bond-buying proposal involves unlimited purchases of government debt that will be sterilized to assuage concerns about printing money, two central bank officials briefed on the plan said today. Draghi will announce whether the proposal has been agreed to at a press conference tomorrow.
“There is a sense of cautious optimism that the ECB will finally deliver meaningful policy actions, which is supporting risk appetite and overall market sentiment,” Marrinan said.
Principal, the life insurer and asset manager, may sell $300 million of 10-year debt to yield 175 basis points more than benchmarks and $300 million of 30-year securities at a relative yield of 195 basis points, according to a person familiar with the transaction. The new bonds may be rated A3, the fourth- lowest level of investment grade, by Moody’s Investors Service, said the person, who asked not to be identified because the terms aren’t set. Barclays Plc, Citigroup Inc. and Wells Fargo & Co. are managing the sale.
CME Group Inc. (CME), the owner of the world’s largest futures exchange, is planning to sell $500 million of 10-year bonds to retire the company’s $750 million of 5.4 percent notes maturing in August 2013, according to a person familiar with the transaction.
Berkshire Hathaway Inc. (BRK/A), the holding company run by billionaire Warren Buffett, is selling $750 million in add-on offerings of five-, 10- and 30-year bonds, according to a person familiar with the transaction. Goldman Sachs Group Inc. and Wells Fargo are managing the sale.
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