Target Sells $2 Billion of Debt to Finance Tender Offer

Target Corp. (TGT), the second-largest U.S. discount retailer, borrowed $2 billion in a two-part offering to buy back as much as $1 billion of notes.

The retailer sold equal portions of 2.3 percent, five-year securities that yielded 60 basis points, or 0.6 percentage point, more than similar-maturity Treasuries and 3.5 percent, 10-year bonds that yielded 90 basis points more than benchmarks, according to data compiled by Bloomberg.

Target offered to repurchase bonds from among $3.8 billion face value in six series of notes with coupons ranging from 6.35 percent to 7 percent, the Minneapolis-based company said today in a statement.

The tender offer will help Target “lower its interest expense meaningfully,” Carol Levenson, an analyst at New York-based Gimme Credit LLC, wrote in an e-mail today. The bonds being tendered for have a weighted-average coupon of 6.7 percent, “implying the opportunity for substantial interest expense savings,” Levenson wrote in a research note.

The highest priority will be given to $1.49 billion of 7 percent bonds due January 2038 at a maximum price of $1.386.84 for every $1,000 of face value, including an early-tender premium, according to the statement. Those securities traded at 134 cents on the dollar to yield 4.61 percent on June 12, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Hacker Attack

Target’s outstanding bonds indicate it would pay about 3.48 percent, or 84 basis points more than similar-maturity Treasuries, to issue new 10-year bonds and 2.21 percent, or a 47-point spread for five-year, fixed-rate debt, according to Bloomberg data show.

Former Chief Executive Officer Gregg Steinhafel was ousted last month in the wake of a hacker attack that compromised personal data of millions of shoppers during the holiday season. Moody’s Investors Service said in a ratings statement that the sudden departure had a negative effect on the retailer’s credit, even as it didn’t change the company’s A2 rating and “stable” outlook. Standard & Poor’s grades Target A, equivalent to the Moody’s ranking, and also maintains a “stable” outlook.

“There are a lot of reasons to be wary of this credit,” Levenson wrote in the e-mail. “The former CEO could be counted upon to remain financially conservative. Who knows what the financial policies might be under a new leader, especially considering the weak stock price performance?”

The company’s share price has fallen 16.7 percent in the last 12 months to close at $58.17 in New York.

Target’s previous benchmark sale was a June 2012 offering of $1.5 billion of 4 percent bonds due in July 2042, Bloomberg data show. Benchmark issues are typically at least $500 million. Wal-Mart Stores Inc. is the largest U.S. discount retailer by revenue.

To contact the reporters on this story: Adam Janofsky in New York at ajanofsky4@bloomberg.net; Caroline Chen in New York at cchen509@bloomberg.net

To contact the editors responsible for this story: Shannon D. Harrington at sharrington6@bloomberg.net Richard Bravo, Chapin Wright

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