Shareholders of Oracle Corp. and Amgen Inc. are benefiting from the cheap cost to borrow in the bond market.
Oracle sold $10 billion of notes on Tuesday, including the software maker’s first bond that will mature in 40 years, at yields that were lower than originally offered, according to a person with knowledge of the deal. Amgen, the world’s second-biggest biotech company, issued $1.25 billion in 30-year securities at its lowest coupon for that maturity as a part of a $3.5 billion debt sale, according to data compiled by Bloomberg. Both borrowers raised debt to return capital to their equity investors.
The highest-rated companies that have been building up their balance sheets after the financial crisis are showing willingness to borrow to satisfy stock investors pushing them to lift share prices. And even as the Federal Reserve moves closer to raising interest rates, forecasts that the U.S. central bank will wait until September, is encouraging borrowers to embrace yields on corporate bonds that are hovering near record lows. Apple Inc. said Monday it may tap debt markets to fund share buybacks.
“Companies, emboldened by a better economic environment are pursuing more shareholder-friendly activities using debt,” said Edward Marrinan, a macro credit strategist at RBS Securities in Stamford, Connecticut. “Conditions remain very ripe for issuers to come to market. Costs are low and demand is high and the timing is good with the Fed deferring rate hikes.”
Investors are rewarding companies that have hoarded cash and tightened spending. The ratio of net debt to earnings before interest, taxes, depreciation and amortization for companies in the Standard & Poor’s 500 index is near the lowest levels on record.
Oracle last month boosted its dividend for the first time since 2013 by 25 percent to 15 cents a share, up from the prior payout of 12 cents. Oracle, based in Redwood City, California, last sold bonds in June, when it issued $10 billion.
The company sold the new debt in six parts, with the $1.25 billion 40-year portion yielding 170 basis points more than similar-maturity Treasuries, 10 basis points less than where the deal was initially marketed. A basis point is 0.01 percentage point.
“Supply continues to be met with decent demand so it’s not at the point where the market’s overwhelmed,” Craig Bishop, the Minneapolis-based strategist for the fixed-income strategies group at RBC Wealth Management, said by telephone. The firm oversees about $60 billion in credit assets. “You have some confidence in investors to take on credit at this point.”
Projections about when the Fed will increase interest rates have been pushed back.
A majority of economists in an April 3-9 Bloomberg survey forecast the first rate rise at the Fed’s September meeting. In two surveys conducted in March, a plurality of economists said the first increase would come in June.
Amgen said in October it plans a campaign of stock buybacks and dividends that will return 60 percent of its adjusted earnings to shareholders through 2018. The company’s 30-year debt pays 4.4 percent, the lowest rate the issuer paid for that maturity, Bloomberg data show.
Amgen’s bond sale will also be used to repay debt, including borrowings under its term loan agreement, the company said Tuesday in a regulatory filing. The Thousand Oaks, California-based company last issued bonds in a $4.5 billion offering in May, Bloomberg data show.
Apple unveiled a plan Monday to boost its share-buyback authorization by $50 billion to $140 billion, and increasing the company’s dividend by 11 percent. Cupertino, California-based Apple has issued the equivalent of $40.35 billion of bonds since April 2013, when it sold $17 billion in what at the time was the biggest corporate-bond offering ever.
The iPhone maker plans to finance all of this “with U.S. cash, future U.S. cash flow generation and borrowings from both domestic and international debt markets,” Apple’s Chief Financial Officer Luca Maestri said on a Monday conference call with analysts.
“We have these large investment-grade companies that are sitting on so much cash that have an ability to distribute it without greatly increasing leverage so it wouldn’t necessarily promote a rating downgrade,” Ben Garber, a capital markets economist at Moody’s Investors Service, said by telephone. “In the broad sense the global trend to boost buybacks and dividends is negative for credit quality.”