By Dow Jones Business News, February 25, 2013, 04:39:00 PM EDT
By Patrick McGee
The corporate bond market had its busiest session for new deals in more than a month Monday, as companies finish up
with the earnings season and switch their focus to funding needs.
Eight companies, including PepsiCo Inc. ( PEP ), UnitedHealth Group Inc. ( UNH ) and Caterpillar Inc. ( CAT ), leapt into
the market to raise cash, pricing at least $9.6 billion of bonds in the busiest session since Jan. 16, according to data
"The market seems vibrant," said Tom Farina, head of credit at Deutsche Bank Trust Co. He said the recent lull in
issuance has helped to underpin demand for new deals.
Buyer appetite was strong even as stocks fell and some corporate bonds faltered in the secondary market. The safe-
haven 10-year U.S. Treasury rallied for a fourth-straight session, sending its yield down to 1.895%.
The $9.6 billion session compares with average weekly issuance of $15.6 billion over the past month. Volume is
typically slow in February as companies post fourth-quarter and full-year earnings, whereas March is often the busiest
month of the year.
Monday's three biggest deals each included a tranche of floating-rate notes, a type of short-term bond whose interest
payment resets every quarter. This allows them to retain value if interest rates rise. Yields move inversely to prices,
so fixed-rate bonds drop in price as interest rates climb.
When a company sells floating-rate notes, its borrowing costs are tied to the three-month London interbank offered
rate, or Libor, which has declined 0.02 percentage point this year to 0.29%. A year ago it was 0.49%.
The drop in Libor means companies can issue floating-rate notes at a lower cost, whereas U.S. Treasury rates, the
benchmark for fixed-rate bonds, have risen.
"[Short-term] rates are so attractive right now--it's too good to pass up," said Kathleen Gaffney, portfolio manager
at Eaton Vance, referring to company borrowing plans.
Pepsi sold $2.5 billion worth of bonds, including $625 million of three-year floating-rate notes paying 0.21
percentage point over the Libor rate. It also priced three-year fixed-rate notes at 0.712% and 10-year bonds paying
UnitedHealth Group was on track to sell $2.25 billion of bonds in a four-part deal featuring fixed maturities of
between six years and 30 years. The company added an 18-month floating-rate tranche Monday afternoon because of heavy
demand, people familiar with the transaction said.
Caterpillar unit Caterpillar Financial Services Corp. was on pace to raise $1.1 billion in a four-part deal.
Smaller issuers in Monday's market included French lender BNP Paribas (BNP.FR), Cincinnati lender Fifth Third Bancorp
( FITB ), communications company Motorola Solutions Inc. ( MSI ), energy company Consolidated Edison Inc. ( ED ) and Spectra
Energy Corp. ( SE ).
Write to Patrick McGee at firstname.lastname@example.org
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