BofA Issues $7.6 Billion of Bonds in Third-Largest Sale of Year

Bank of America Corp. issued $7.6 billion of notes in this year’s third-largest U.S. corporate bond sale, the day after saying regulators approved its first dividend increase since the financial crisis.

The biggest piece of the four-part deal, $2.75 billion of 4 percent securities due in 2024, were sold at a yield of 137 basis points more than similar-maturity Treasuries. The lender also issued $2.5 billion of five-year notes, $850 million of floating-rate debt, and $1.5 billion of 30-year bonds, according to data compiled by Bloomberg.

The second-biggest U.S. bank by assets offered the bonds after raising its quarterly dividend to 5 cents from 1 cent and winning approval from the Federal Reserve for the Charlotte, North Carolina-based company’s capital plan.

Today’s offering is a testament to bond investors’ improved assessment of Bank of America’s creditworthiness, according to Brian Reynolds, chief market strategist for brokerage firm Rosenblatt Securities Inc. in New York.

“This deal is just an illustration of the confidence that credit investors have,” Reynolds said in a telephone interview. Issuing debt after the bank got approval for its dividend increase shows “they mean business.”

The cost to protect the debt of Bank of America using credit-default swaps for five years has dropped to 69 basis points from almost 500 basis points in 2011, according to data provider CMA, which is owned by McGraw Hill Financial Inc. and compiles prices quoted by dealers in the privately negotiated market.

Legal Settlements

Credit-default swaps typically fall as investor confidence improves and rise as it deteriorates. 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.

The debt offering ranks behind Petroleo Brasileiro SA’s $8.5 billion bond issuance and Cisco Systems Inc.’s $8 billion sale, Bloomberg data show. Bank of America’s notes are expected to be rated Baa2 by Moody’s Investors Service and proceeds will be used for general corporate purposes, according to Bloomberg data.

Bank of America yesterday also announced a pair of legal settlements of accusations stemming from the financial crisis, including a $9.5 billion accord over claims tied to faulty mortgages.

Chief Executive Officer Brian T. Moynihan “has been focused on the balance sheet and he has been focused on getting these legacy issues behind him,” Jody Lurie, a corporate-credit analyst at Janney Montgomery Scott LLC in Philadelphia, said in a telephone interview.

Left Behind

Bank of America was left behind in 2011 after the Fed rejected the company’s proposal and competitors including New York-based JPMorgan Chase & Co. and Wells Fargo & Co. increased their payouts. Moynihan’s firm didn’t ask for a dividend increase in 2012 and got a $5 billion share repurchase program approved last year.

A measure of risk for the U.S. corporate-credit market declined. Series 22 of the Markit CDX North American Investment Grade Index, which started trading March 20, decreased one basis point to 71 basis points at 6:10 p.m. in New York, according to prices compiled by Bloomberg. The index is a credit-default swaps gauge used to hedge against losses or to speculate on creditworthiness.

Commercial Paper

The market for corporate borrowing through short-term IOUs rose for the first time in three weeks as issuance by nonfinancial businesses increased.

The seasonally adjusted amount of U.S. commercial paper increased $6.2 billion to $1.025 trillion outstanding in the week ended yesterday, the Fed said today on its website. That’s the highest level since the market touched $1.028 trillion in the period ended March 5.

Commercial paper sold by nonfinancial companies rose $14.1 billion to $261.9 billion outstanding, the highest level since 2001, according to Fed data compiled by Bloomberg.

The extra yield investors demand to hold investment-grade corporate bonds rather than government debt was little changed at 96 basis points, Bloomberg data show.

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