Magazine for Senior Financial Executives: A Corporate-Bond Fest

A Corporate-Bond Fest

George Donnelly

Corporate debt is hot. AT&T issued $8 billion in bands in March, a record-setting issue that was raised by $2 billion because of strong demand. In April, Conoco tapped the market for $4 billion, which was also greeted warmly. Other big companies are following with more high-grade debt. With demand high, investment-grade companies are getting while the getting is good.

In explaining AT&T’s massive issue (breaking MCI/WorldCom’s $6.1 billion record), CFO Dan Somers says credit markets, although they had strengthened on price, “had really improved considerably from the liquidity standpoint. Given our size and the repositioning of the company, there was great demand for our credit.”

But AT&T snot through with issuing debt this year. Its purchase of IBM’s Global Network ($5 billion) and debt it will assume in acquiring TCI will help raise AT&T’s total obligations to $30 billion by year’s end, a number that leaves Somers undaunted, even though it’s up from about $5 billion at the start of the year. “You get criticized for being underlever-aged and not using your balance sheet,” says Somers. The acquisition of MediaOne is expected to force AT&T to issue more huge debt within a year.

Even with the influx of large bond deals, the appetite persists for high-grade debt because managed money is moving out of treasuries and mortgage-backed securities in “a search for yield,” says Don Devine, managing director at Credit Suisse First Boston, which co-led the Conoco deal.

And it’s not just big. companies that are enjoying the demand. “A small deal of an investment-grade company can be done quite easily now,” Devine says.

COPYRIGHT 1999 CFO Publishing Corp.

COPYRIGHT 2000 Gale Group