Corporate Bonds: AT&T, Fannie Mae, R&B Falcon Plan Large Sales
New York, March 16 (Bloomberg) -- AT&T Corp., Fannie Mae and R&B Falcon Corp. plan bond sales totaling at least $7.8 billion as steady demand and low borrowing costs lures companies.
The yield on 10-year Treasuries, for example, is about 5.13 percent. While that's 48 basis points higher than the start of the year, it's still 46 basis points less than the average for the first half of 1998 -- when companies sold a record amount of debt.
Anadarko Petroleum Corp., which explores for oil and natural gas, sold $200 million of 30-year bonds yesterday to pay off some floating-rate debt.
''We had $750 million of floating-rate debt'' and benchmark Treasury yields looked attractive enough that ''we wanted to fix some of it'' for a longer period of time, said Michael Rose, chief financial officer at Anadarko. The Houston-based company sold 7.2 percent bonds at a yield of 7.22 percent, or 165 basis points more than 30-year Treasuries.
Anadarko's bonds and a proposed $800 million sale by oil driller R&B Falcon might benefit from rising oil prices as major producers agree on a plan to cut production. Crude oil prices rose 9 percent last week after plunging to a 12-year low in December.
The rise in prices has helped fuel demand for energy company debt. The yield spread between Valero Energy Corp.'s new 7.375 percent notes due in 2006 and comparable Treasury notes narrowed 15 basis points to 190 basis points since they sold last Wednesday.
Even so, the sustained weakness in oil prices has taken a toll on companies in the industry, including Houston-based R&B Falcon, the fourth-largest U.S. drilling contractor. It's stock has dropped almost 71 percent the past year, and its debt ratings are under review for reductions by Moody's Investors Service and Standard & Poor's Corp.
R&B Falcon's senior debt is rated ''Ba1'' by Moody's and ''BB+'' by S&P, both one notch below investment grade.
R&B Falcon Ratings
Last month, S&P placed its ratings under review because of expectations that R&B Falcon would sell debt securities to sustain spending on its drilling rig construction program.
''This could result in an unanticipated increase in debt and thinner cash flow protection measures,'' S&P said. ''The markets to which the company has targeted its investments have declined steeply and remain soft, and prospects for price recovery in 1999 and potentially 2000 remain week.''
Investors are also keeping an eye out for possible sales by Allied Waste Industries Inc. and Korea Development Bank.
Allied Waste, the No. 3 trash hauler, could sell as much as $2.5 billion of junk bonds in coming weeks to help pay for its $9.1 billion acquisition of Browning-Ferris Industries Inc.
KDP, a South Korean government-owned bank, said it plans to sell as much as $1 billion of bonds in the first half of the year, possibly next month.
Korea Development Bank
Investors say a sale is more likely since the development bank's credit rating was raised to investment-grade ''Baa3'' from junk-rated ''Ba2'' earlier this month by Moody's. The bank's credit rating fell into junk status in December 1997 -- days after it failed to sell $2 billion of global bonds and days after the government was forced to seek help from the International Monetary Fund to avoid bankruptcy.
In the biggest upcoming sale, AT&T is expected to raise between $5 billion and $6 billion. With capital needs of about $15 billion, investors suspect it might boost the debt sale enough to top the record $6.1 billion offering by MCI WorldCom last August.
The largest U.S. telephone company is slated to begin investor presentations this week for what will be its first public bond sale in almost four years.
AT&T is raising funds to help repay commercial paper sold in connection with its $59.4 billion acquisition of Tele- Communications Inc., the No. 2 cable company. Proceeds will also finance a $4 billion share repurchase program.
The company has filed shelf registrations with the Securities and Exchange Commission to sell as much as $13 billion of debt.
Fannie Mae, the No. 1 U.S. mortgage financier, plans to sell at least $2 billion of 5.125 percent five-year notes. It's also offering to exchange 71 smaller existing issues totaling $15 billion for the five-year issue. The 5.125 percent notes are bid at 5.50 percent, or 45 basis points more than benchmark five-year Treasury notes according to Bloomberg analytics.
09:22:36 03/16/1999
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