MasterCard Inc. (MA), the second-largest U.S. payments network, sold $1.5 billion of debt in two parts in its first bond sale on record.
The company, based in Purchase, New York, sold $500 million of 2 percent, five-year securities that yielded 40 basis points more than similar-maturity Treasuries and $1 billion of 3.375 percent, 10-year notes that paid 72 basis points more than benchmarks, according to data compiled by Bloomberg.
The bond issue, which is its first ever, “provides MasterCard with additional financial flexibility,” Chris Monteiro, a spokesman for the company, said in an e-mail. “We are taking the opportunity to add debt to our capital structure at historically low rates, lowering our cost of capital.”
MasterCard may use the proceeds for general corporate purposes, including funding for working capital, investments in growth and shareholder returns, according to a regulatory filing. Yields of corporate bonds in the U.S. were 3.84 percent yesterday, one percentage point less than the average over the last five years and compared with a record low of 3.35 percent in May, according to the Bank of America Merrill Lynch U.S. Corporate & High Yield Index.
The new securities are rated A2 by Moody’s Investors Service, according to a statement today from the ratings firm.
“MasterCard benefits from a leading market position in the electronic payments space,” Moody’s analysts led by Stephen Sohn wrote in the report. The credit-card company has a “globally recognized brand, and favorable long-term growth prospects created by the secular trend towards electronic payments,” according to the report. Visa Inc. is the biggest bank-card network.
The ratings company also said it expects that MasterCard will operate with $5 billion of debt or less, an amount that’s “modest compared to its cash flow” and maintain a long-term leverage target of about 1 times adjusted debt to earnings before interest, taxes, depreciation and amortization.
The new version of a benchmark measure of corporate credit risk in the U.S., which started trading March 20, increased.
Series 22 of the Markit CDX North American Investment Grade Index, a credit-default swaps gauge used to hedge against losses or to speculate on creditworthiness, added 0.3 basis point to 71.7 basis points at 4:29 p.m. in New York, according to prices compiled by Bloomberg.
The swaps gauge typically rises as investor confidence deteriorates and falls as it improves. The contracts pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
A SunGard Data Systems Inc. unit being spun off from the computer software and services provider sold $425 million of 8.75 percent notes maturing in 2022 that yielded 622 basis points more than similar-maturity Treasuries, Bloomberg data show.
The bonds, issued by SunGard Availability Services Capital Inc., are part of about $1.7 billion in funding that will be used for a dividend to the parent, which will pay down debt, according to a March 13 statement from Moody’s.
The risk premium on the Markit CDX North American High Yield Index, tied to the debt of 100 speculative-grade companies, widened 2.5 basis points to 317 basis points, Bloomberg prices show. Series 22 of the high-yield gauge will begin trading tomorrow, according to a Markit Group Ltd. statement dated March 17.
New versions of Markit’s indexes are created every six months. Companies in the index are replaced if they no longer hold appropriate grades, aren’t among the most actively traded borrowers or fail to meet other criteria. Speculative-grade bonds are rated below Baa3 by Moody’s and lower than BBB- at Standard & Poor’s.
The extra yield investors demand to hold investment-grade corporate bonds rather than government debt was little changed at 95.9 basis points, Bloomberg data show. A basis point is 0.01 percentage point.
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