July 19 (Bloomberg) -- International Business Machines Corp. sold $2 billion of five-year notes at a lower interest rate than it got in December after reporting second-quarter sales that beat analysts’ estimates.
The world’s biggest computer-services provider issued $2 billion of 1.95 percent notes that yield 65 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg. IBM last raised five-year debt in December with $1 billion of 2 percent notes that paid a 55 basis-point spread, Bloomberg data show.
Higher-than-estimated results at companies led by Armonk, New York-based IBM helped bolster investor confidence in U.S. corporate debt by the most this month. It said yesterday that second-quarter sales were $26.7 billion, topping the $25.4 billion average estimate of analysts surveyed by Bloomberg.
“IBM is showing that it has been a very positive quarter for them,” said Jody Lurie, a corporate credit analyst at Janney Montgomery Scott LLC in Philadelphia. Today’s issuance shows the company “taking advantage of a cheap rate,” she said.
The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, dropped 2.9 basis points to a mid-price of 96.1 basis points as of 4:59 p.m. in New York, according to index administrator Markit Group Ltd. That’s the biggest decline since June 30. The credit swaps index typically falls when investor confidence improves.
Proceeds may be used for general corporate purposes, IBM said today in a regulatory filing. The company has $21.7 billion in long-term debt and $8.5 billion of short-term debt as of March 31, according to the filing. It’s raised $11.5 billion of bonds in the past two years, Bloomberg data show.
“The company could be taking advantage of the market conditions to refinance short-term debt to extend maturities and management may want to add to its robust liquidity level to provide additional cushion for shareholder rewards, buybacks, dividends, while implementing its strategic growth initiatives,” Lurie said.
IBM plans to spend about $20 billion on dividends and $50 billion buying back stock through 2015, IBM said at an investor meeting in March. Its quarterly payout will rise 15 percent to 75 cents a share, the company said in an April 26 statement. IBM added $8 billion to its stock-repurchase plan, bringing the total authorized by the board to $12.7 billion.
“They’re a company that people like to have, they are very global,” Lurie said.
The company is graded Aa3 by Moody’s Investors Service and a step lower at A+ by Standard & Poor’s.
Investors have shied away from longer-term bonds as the combination of sovereign debt crises and U.S. Federal Reserve actions to bolster the economy increase the likelihood of faster inflation. The gap in relative yields on U.S. corporate debt due in one to three years against that due in seven to 10 years reached 74 basis points last month, the widest since 2001, before narrowing to 73 basis points yesterday, Bank of America Merrill Lynch index data show.
The yield on the benchmark 30-year U.S. Treasury bond may rise to 4.8 percent by mid 2012 from about 4.3 percent currently, according to the median estimate of 49 economists and strategists surveyed by Bloomberg News.
“Not many investors feel confident in jumping in on the long end,” said Rajeev Sharma, a money manager in New York at First Investors Management Co., where he helps oversee $1.5 billion of investment-grade debt. “Rates are still expected to go up.”
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