Bond investors undeterred by Caterpillar tax fraud allegations


Reuters

By Will Caiger-SmithNEW YORK, March 20 (IFR) - Caterpillar Financial Services
found strong investor demand for a new bond on Monday, just days
after a government-commissioned report accused the company of
tax fraud.
    The financing arm of the US heavy equipment manufacturer
attracted US$1.8bn of demand for a US$900m senior unsecured bond
due in 2019.
    "It didn't really seem to affect the outcome of the trade at
all," said a banker of the fraud accusations, which surfaced in
early March.
    On March 2, federal agents raided three Caterpillar
buildings near its headquarters in Illinois. The company's share
price dropped 4.2% to US$94.36.
    Days later, a report accused Caterpillar of deliberately
flouting US tax law by dodging income taxes on offshore
earnings, in order to maintain its share price.
    The company has not been charged and it is not clear whether
investigators intend to act upon the report's findings.
    On March 16, the company announced it had hired former US
attorney general William P. Barr as outside counsel to help
address the investigation.

    STRONG PRICING
    Monday's bond deal priced at 63bp over Treasuries for the
US$650m fixed-rate tranche and 28bp over Libor for the US$250m
floating rate piece.
    That spread was 12bp inside initial price thoughts and
implied a new issue concession of around 4bp over the issuer's
outstanding curve.
    A banker away from the deal said the trade's pricing showed
how resilient demand for new bonds was.
    "There's no sort of premium for the volatility," said the
banker. "The fact they were able to put it out at this level
says something about the market."
    Caterpillar Financial Services' 2.1% 2020 bonds have widened
8bp since the start of March, according to MarketAxess.
    Parent company Caterpillar Inc's 3.9% 2021 bonds have
widened 13bp over the same period.

 (Reporting by Will Caiger-Smith; editing by Shankar
Ramakrishnan)
 ((Will.Caiger-Smith@thomsonreuters.com; 646 223 7385;))

Keywords: USCORPBONDS CATERPILLAR/BONDS



This article appears in: Politics , Stocks


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