Wal-Mart Issues Bonds, Wall St. Smiles
By Nancy Leinfuss
NEW YORK (Reuters) - Bond investors shopping for quality corporate paper flocked Thursday to discount retailer Wal-Mart Stores Inc.'s (NYSE:WMT - news) offering of $5.75 billion in global bonds at prices that market players called bargains.
A day after the U.S. Treasury announced a sharp cutback in bond issuance, investors deemed the Wal-Mart offering a blowout event. Demand was so heavy that Wal-Mart boosted the size of its offering twice from the originally planned $5.0 billion.
''The deal was very attractive,'' said one high-grade syndicate official. ''It's a quality name, a global issue that will trade well.''
With the government running a budget surplus, bond investors need safe alternatives to the shrinking supply of U.S. Treasuries. Wal-Mart is the latest to cash in on the trend, which has seen companies such as Ford Motor Co.'s (NYSE:F - news) credit arm finance their operations on favorable terms by issuing billions of dollars in high-grade corporate paper.
Wal-Mart's 10-year issue garnered the strongest interest, with eager investors snapping it up at an interest rate 103 basis points, or 1.03 percentage points, over comparable U.S. Treasuries. The deal's five-year and two-year tranches were also oversubscribed.
''A name like Wal-Mart with a 10-year spread at 103 was very attractive, we were very pleased,'' said Douglas Williams, vice president and portfolio manager at First Capital Group, who bought the deal.
''We bought the deal across the curve and were very happy to see the deal get done at levels that were talked about from the get-go,'' Williams said.
Wal-Mart sold $1.25 billion in two-year notes at a spread of 65 basis points over Treasuries; $1.25 billion in five-year notes at a spread of 85 basis points over Treasuries; and $3.25 billion in 10-year debt a spread of 103 basis points over Treasuries, lead manager Lehman Brothers said.
Demand stayed heavy even as more corporations are headed to the corporate debt market in the near future to raise capital ahead of potential year 2000 computer glitches in the fourth quarter.
The abundance of corporate supply at a time when the U.S. Treasury is planning to buy back billions of dollars of government debt has shown up in wider 10-year swap spreads -- the most widely used indicator of relative demand for risk.
Swap spreads measure the gap between government bond yields and the cost of swapping between fixed and floating interest rates -- roughly the cost of borrowing for a corporation with double-A rated credit such as Wal-Mart. These spreads have recently ballooned to their widest levels in a decade, traders said.
Still, Wal-Mart braved the fray to bring its deal to market. And although the deal priced at the wider end of spread talk, the retailer did not have to cheapen it up beyond the initial range to sell $750 million more in debt than it originally planned.
''It was priced to sell. That was obvious when they had so much demand that they increased it in size,'' Williams said.
''They weren't trying to sell investors short, they wanted to get it done, yet provide investors incentive to get in, so that's why they spent several weeks on the road globally telling the story,'' Williams said.
Market players said paper issued by a brand name like Wal-Mart is good to hold going into the fourth quarter because it is easily traded, as liquid as U.S. Treasury paper. |
