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Wal-Mart, Anheuser-Busch Sell Debt as Spreads Shrink
Bloomberg, 26 March 2010

Wal-Mart Stores Inc., the world’s largest retailer, and Anheuser-Busch InBev BV, the biggest beer brewer, led $30.2 billion of U.S. corporate bond sales this week as borrowing costs relative to Treasuries fell to the lowest in more than two years.

Wal-Mart, based in Bentonville, Arkansas, sold $2 billion of notes and Anheuser-Busch InBev of Leuven, Belgium issued $3.25 billion of debt in a four-part offering, according to data compiled by Bloomberg.

Sales of U.S. corporate bonds topped the 2010 average for the third straight week as Wal-Mart sold five-year notes at the lowest cost relative to Treasuries in half a decade, according to data compiled by Bloomberg. Buyers are snapping up bonds issued by high-profile, investment-grade companies because they yield more than Treasuries without much additional risk, said Burt White, chief investment officer at LPL Financial Corp.

“Investors are still at the point where they’d rather go to a really good name where they can get some yield even though the spreads are pretty tight,” said White, who helps manage about $279 billion in assets at Boston-based LPL Financial.

The extra yield investors demand to own investment-grade corporate bonds instead of U.S. Treasuries fell 4 basis points to 164 basis points yesterday, the narrowest since November 2007. Absolute yields rose 12 basis points to 4.63 percent as Treasury prices fell. A basis point is 0.01 percentage point.

High-Yield Spreads

Spreads on high-yield, high-risk debt contracted 20 basis points to 578 basis points, according to the Bank of America Merrill Lynch U.S. High Yield Master II Index. They have tightened 93 basis points this month and 51 basis points this year to the narrowest since December 2007, the index data show.

High-yield debt is rated below Baa3 by Moody’s Investors Service and BBB- by Standard & Poor’s.

Sales this week were 23 percent higher than this year’s average of $24.5 billion through the week ended March 19, according to data compiled by Bloomberg. They rose 15 percent from last week, Bloomberg data show.

The yield on the 10-year Treasury, the market bellwether, rose to as much as 3.92 percent, the highest level since June, after a record-tying $118 billion of auctions. Yesterday’s sale of seven-year notes drew investor bids of 2.61 times the amount offered, the lowest in 10 months.

The U.S. economy still needs low interest rates to spur growth, said Federal Reserve Chairman Ben S. Bernanke in prepared testimony before the House Financial Service Committee yesterday. The central bank will be ready to tighten credit in time to avoid inflation, he said.

Wal-Mart Notes

Wal-Mart’s $750 million of notes due in 2015 yielded 3.025 percent, or 45 basis points more than benchmarks, according to data compiled by Bloomberg. That’s the lowest relative yield since a $1 billion sale of five-year debt in January 2005 that paid a 40 basis-point spread, Bloomberg data show.

The company also sold $1.25 billion of 30-year notes, Bloomberg data show.

“There probably is more risk than the prices suggest, but given the alternatives, people find it to be reasonably attractive,” said David James, vice president of fixed income at Wall Street Access, a New York-based broker-dealer. “It’s a very large company, it’s very stable, and it’s always going to trade very favorably compared to everything else.”

Wal-Mart spokesman David Tovar declined to comment on the offering.

Investment-Grade Sales

Anheuser-Busch InBev’s sale of debt due in 2013, 2015 and 2020 led $21 billion of investment-grade issuance this week. Proceeds will be used to repay debt and for general corporate purposes, said a person familiar with the offering who wasn’t authorized to discuss it publicly and declined to be identified. The company was formed when InBev BV bought Anheuser-Busch Cos. for $52 billion in 2008.

The brewer paid a spread of 123 basis points on its 10-year notes, the lowest since 83 basis points in February 2007, before the global financial crisis began. The company sold bonds with maturities at or near 10 years three times in the interim.

Spokeswoman Marianne Amssoms declined to comment on the latest sale.

JPMorgan Chase & Co., which raised $1.5 billion in an offering of 30-year capital securities, and Wells Fargo & Co., which sold $1.25 billion of notes due in 2015, were among this week’s issuers of investment-grade bonds, according to data compiled by Bloomberg.

High-yield corporate bond issuance totaled $9.2 billion this week, led by Lyondell Chemical Co., the Houston-based chemical maker seeking to exit bankruptcy, issued $2.75 billion of notes in dollars and euros, and Consol Energy Inc., which sold $2.75 billion, Bloomberg data show.

“We’re very upbeat about the market,” said John Cokinos, head of high-yield capital markets at Bank of America Corp., which managed both sales. “New issues continue to perform well, which is very important to the health of the high-yield market. There’s been a healthy amount of supply but it’s being digested well.”