Companies Smash Debt Mark and Keep Going in Race to Fed Liftoff

  • Halliburton helps push year's offerings to $1.17 trillion
  • `Go now,' says Mizuho, as corporate yield gap narrows

U.S. companies are pushing their borrowing binge to new heights before the Federal Reserve gets a chance to end seven years of zero-rate policies.

Halliburton Co. led almost $16 billion in investment-grade bond sales Thursday as the oilfield services provider raised financing to fund its $34.6 billion takeover of Baker Hughes Inc. The offerings pushed issuance for 2015 to a record $1.17 trillion, according to data compiled by Bloomberg. That, along with $263 billion of debt raised by junk-rated borrowers this year, means U.S. companies are now closing in on $10 trillion of debt offerings since the central bank lowered its short-term interest-rate target to about zero in December 2008, the data show.

Companies are taking advantage of renewed investor appetite after a global commodities rout pushed yields to a three-year high relative to government debt. While the market turmoil is threatening to leave debt-fund managers with the slimmest annual gains of the past seven years, a rally in October has brought a resurgence of investor cash.

"To anyone that’s thinking about going, we’re recommending that they go now," said Vincent Murray, the head of U.S. fixed-income syndicate at Mizuho Securities USA in New York. "There’s not a big camp that thinks spreads are going to tighten."

The extra yield investors demand to own investment-grade and junk-rated bonds reached 2.74 percentage points on Oct. 2, the highest since August of 2012, according to Bank of America Merrill Lynch index data. It’s since narrowed to 2.42 percentage points.

The Fed next meets on Dec. 15, with Chair Janet Yellen saying on Wednesday that an interest-rate hike would be a “live possibility” at the meeting. October’s employment surge adds to signs that the economy is pushing toward full strength. After the report, traders pushed the probability of a central bank hike in December to 70 percent, up from 56 percent before the data, according to futures data compiled by Bloomberg.

Royal Dutch Shell Plc’s international finance unit was the other big issuer in the market Thursday, selling $5 billion of bonds in five parts ranging in maturity from 18 months to five years.

“We are seeing a bear-market rally,” said Ashish Shah, the head of global credit strategies at AllianceBernstein in New York. "The overall market backdrop still feels bearish. It doesn’t mean that people don’t want to invest -- once you get to an attractive level, when valuations have cheapened up, you always see interest."

‘Highly Rated’

Halliburton issued $7.5 billion of bonds Thursday as investors shrugged off concerns that regulatory hurdles may derail the company’s deal with Baker Hughes. The company sold the debt in five parts, including $2 billion of 10-year bonds yielding 1.6 percentage points more than comparable Treasuries. The cost was less than the initial 1.7 percentage points at which it was marketing the debt, according to a person familiar with the transaction who asked not to be identified, citing lack of authorization to speak publicly about the matter.

The offering came a day after an analyst at Jefferies Group LLC cut the probability of Halliburton completing the takeover to 67 percent from 85 percent due to antitrust concerns. The company has already pushed back the time line for closing the merger amid scrutiny from regulators in the U.S. and Australia.

A lot of big takeovers receive regulatory scrutiny but companies typically go ahead with debt issuance, according to Matthew Duch, lead portfolio manager at Calvert Investments Inc. The offering had been "well-telegraphed," he said.

Emily Mir, a Halliburton spokeswoman, declined to comment.

"They are highly rated and a mega-deal, both of which make them attractive in this environment," said Jody Lurie, a corporate credit analyst at Janney Montgomery Scott LLC in Philadelphia, which manages $61 billion in assets.

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