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Disney kicks off 2016 company debt with US$3 billion issue
[NEW YORK] Walt Disney, Ford and Deere & Co inaugurated what is forecast to be the fifth straight year of more than US$1 trillion of investment-grade corporate bond sales.
Disney, the world's largest entertainment company, sold US$3 billion of debt in five parts, according to data compiled by Bloomberg. Issues from the financing arms of Ford and Deere are among 10 deals announced Tuesday, the first investment-grade debt sales since Dec 11, Bloomberg data show.
US companies sold an unprecedented US$1.621 trillion in debt last year, as corporate America rushed to take advantage of the Federal Reserve's zero-rate monetary policy. Yields on investment-grade bonds reached a four-year high of 3.71 per cent last month as the Fed boosted its benchmark rate for the first time in nearly a decade. But borrowing costs remain below the 4.49 per cent average of the past 10 years, according to Bank of America Merrill Lynch index data.
"Yields are higher, and credit-market weakness will push more discipline on borrowers," said Anthony Valeri, an investment strategist at LPL Financial. "But as long as borrowing costs stay low relative to history, the heavy pace of issuance should continue."
Bond sales by investment-grade companies reached a record US$1.31 trillion last year, bolstered by acquisition-related financing, according to data compiled by Bloomberg. With US$627 billion in mergers expected to close in 2016, analysts like Bank of America Corp's Hans Mikkelsen expect more issuance is on the way.
Bank of America is predicting US$1.22 trillion in issuance. The forecast from Morgan Stanley is US$1.05 trillion, Wells Fargo & Co foresees US$1.24 trillion and Barclays Plc anticipates US$1.34 trillion.
The longest-dated portion of Disney's debt sales, a US$500 million tap of an issue due in 2044, yielded 0.85 percentage point more than comparable government securities, according to a person with knowledge of the transaction, who asked not to be identified citing lack of authorisation to speak publicly about the matter. The company issued US$2 billion of debt on September, Bloomberg data show.
The company's shares rose 12 per cent last year, compared with a 0.73 per cent decline by the Standard & Poor's 500 Index. Disney's 7 per cent notes maturing in 2032, returned 0.96 per cent last year, even as US investment-grade debt posted a 0.632 per cent loss, the first since 2013.
Ford Motor Credit sold a three-part issue totaling US$2.75 billion, including 10-year bonds at a 2.15 percentage-point spread to benchmarks. John Deere Capital's three-part deal came to US$1.5 billion, with five-year securities at a 0.85 percentage- point premium.