NEW YORK, April 3 (IFR) - Some of the biggest, safest high-grade credits are raising substantial sums in the bond market, adding to already high cash reserves as they prepare for more volatility in both the markets and the broader economy.
Companies such as Oracle, Anheuser-Busch InBev and Shell International Finance raised billions of dollars last week even though they have enough to cover upcoming maturities, as management remembering past crises prepare for the worst.
"A lot of issuers are looking back and thinking if this really is the next crisis, then they need to prepare and shore up for two years." said Kurt Halvorson, portfolio manager at Western Asset Management.
"For a 4% coupon they can take that risk off the table and start thinking about their business."
The trend started when tech company Oracle priced last Monday and continued on Wednesday with AB InBev's US$6bn four-part bond and Shell's US$3.75bn three-parter.
Beermaker AB InBev has already built up a US$25bn cash reserve to help pay down debts through a series of asset sales, according to CreditSights.
Just the week before, regulators approved AB InBev's US$11bn sale of its Australian subsidiary Carlton & United Breweries to Japanese brewer Asahi.
Spreads on the new AB InBev notes tightened 40bp–50bp through price progression, pricing a US$1.75bn 10-year at 290bp over Treasuries, a US$1bn 20-year at 305bp, a US$2.25bn 30-year at 320bp and a US$1bn 40-year at 330bp.
At those levels, the cash-rich brewer was able to achieve new issue concessions of 10bp, according to IFR data.
AB InBev has already termed out many of its short-term debt maturities and it still has more than US$30bn in cash to pay down just US$3.08bn of maturing bonds over the next three years, according to Refinitiv data.
"Issuers are certainly hedging their bets," said Matt Daly, head of corporate credit research at Conning.
"We're seeing some companies address near-term debt maturities. We’ve seen some term out their bank revolvers and it's prudent to do that when there is access to the market."
Oil majors are also prudently bolstering cash reserves as crude prices continue to hover around US$20 a barrel at a time when demand is at new lows amid global travel restrictions.
High-quality investment-grade names in the sector should be able to weather the storm as they reduce capital expenditures, cut share buybacks and add revolver facilities.
Shell, for example, has some US$40bn in liquidity it can tap into, including US$20bn in cash on hand, but was adding more in the debt markets on Wednesday.
It priced a US$1.5bn five-year at 205bp over Treasuries, a US$1bn 10-year at 215bp and a US$1.25bn 30-year at 210bp.
Those levels were some 50bp tight to where Exxon Mobil priced in the market in mid-March as one of the first high-quality names to reopen the investment-grade primary sector.
"These high-quality oil borrowers are in the market just to take the tail risk off the table," Halvorson said.
"They are going to take on a little bit of incremental debt until prices recover, and hopefully something on the supply side gets sorted out sooner rather than later and demand can come back sharply in Q2 or Q3."
(This story will appear in the April 4 issue of IFR Magazine.)
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