PepsiCo Inc. tapped the bond market with its biggest sale since 2010, joining a record rush of investment-grade issuers looking to lock in near-record low borrowing costs before the Federal Reserve raises interest rates for the first time in nine years.
The world’s largest snack maker, in its second foray into the market this year, sold $3.25 billion of bonds in five parts according to data compiled by Bloomberg. Proceeds will be used to repay as much as $2.9 billion in short-term IOUs that Pepsi has outstanding and for general corporate purposes, the company said in a filing.
Pepsi, the world’s largest soft-drink maker after Coca-Cola Co., sold $2.5 billion of debt in April.
“Their balance sheet is in good condition, they are locking in low borrowing costs, and the company holds a wide economic moat and sustainable competitive advantages, so you don’t have to worry about cash flow or them servicing their debt,” Adam Fleck, director of consumer equity research for Morningstar Inc. “They’ve managed to keep their leverage low, cut cost and stoke sales. They are still very high quality.”
The longest portion of the deal was $500 million of 4.6 percent bonds due in 30 years, according to data compiled by Bloomberg. The largest offering was $800 million of 3.1 percent seven-year notes.
Pepsi has outperformed its peers so far this year, its shares rising 2.7 percent versus a 2.2 percent gain in the Standard & Poor’s Consumer Staples Index.
The company posted second-quarter profit last week that topped analysts’ estimates and boosted its forecast for the year, helped by cost cuts and rising snack sales in North America. Earnings in the three months through June 13 were $1.32 a share, excluding some items, the Purchase, New York-based company said in a statement.
Goldman Sachs Group Inc., HSBC Holdings Plc and JPMorgan Chase & Co. arranged the debt sale, according to the filing.
Chief Executive Officer Indra Nooyi has worked to trim Pepsi’s expenses as the strong dollar damps sales abroad and Americans grow wary of soda over concerns about obesity and artificial sweeteners.
Investment-grade-rated companies have sold $741.5 billion in bonds so far this year, about 14 percent ahead of the pace set last year, which saw an unprecedented $1.097 trillion of the debt sold, according to data compiled by Bloomberg.
This has come as Fed policy makers debate raising their target rate this year from virtually zero, where they have held it since December 2008 to bolster economic growth. Fed Chair Janet Yellen may offer more insight into their plans when she begins two days of testimony before Congress on Wednesday.