International Paper Leads $10 Billion of Company Bond Offerings

International Paper Co. led more than $10 billion of corporate bond sales in the U.S. today, the most in almost two weeks, as relative yields fell to the lowest level in seven years.

The paper and packaging business issued bonds for the first time in more than two years with a $1.6 billion debt offering, selling $800 million each of 3.65 percent, 10-year notes and 4.8 percent, 30-year debentures. The Memphis, Tennessee-based company will use proceeds to make a tender offer for securities maturing in 2018 and 2019, according to a regulatory filing.

Issuance rose to the most since $13.5 billion on May 22 with borrowers taking advantage of demand from bond buyers who bet that central banks would maintain support of fixed-income markets. The extra yield investors demand to compensate for the risk of holding non-government bonds fell to 166 basis points yesterday, the lowest level since July 2007, according to the Bank of America Merrill Lynch U.S. Corporate & High Yield Index.

“There’s a lot of money still coming into the new-issue market, and you have a tremendous amount of bonds maturing each month,” Timothy Cox, executive director of debt capital markets at Mizuho Securities USA Inc. in New York, said in a telephone interview. “It’s just a fabulous market for issuers and investors.”

International Paper is benefiting from having its rating raised by Moody’s Investors Service on May 28. The credit grader lifted the packaging company’s senior unsecured debt rating by one level to Baa2 from Baa3, citing its “sustained deleveraging and the expectation of improving financial and operating performance.”

Interest Expense

Its 10-year securities sold today had an extra yield of 110 basis points more than similar-maturity Treasuries, compared with a 270 basis-points spread for bonds sold in November 2011 with a 4.75 percent coupon. A basis point is 0.01 percentage point.

“Many corporations find the current corporate bond market to be both cheap and welcoming,” Carol Levenson, an analyst at New York-based Gimme Credit LLC., wrote in an e-mail. International Paper “can certainly lower its interest expense dramatically by refinancing this high cost debt,” she said.

Levenson estimated that a complete refinancing of the notes due in 2018 and 2019 would save International Paper at least $100 million in annual interest expense.

Ford, AT&T

Offerings today also included $1.5 billion of debt by Ford Motor Credit Co. in two parts with $1.25 billion of 1.724 percent notes due 2017 and $250 million of three-year, floating-rate bonds at 57 basis points more than the London interbank offered rate, Bloomberg data show. The bonds will be used for general corporate purposes. AT&T Inc. sold $2 billion of 4.8 percent, 30-year debentures today.

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