Sept. 26 (Bloomberg) -- 3M Co. slashed borrowing costs by more than half on its first corporate bond sale since October 2008 as the maker of Post-It notes and Scotch tape seeks to pay back $800 million of debt due in November.
The company issued $1 billion of 1.375 percent, five-year notes at 99.16 cents on the dollar to yield 65 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg. In October 2008, St. Paul, Minnesota-based 3M raised $800 million of 4.5 percent debt due November 2011 as credit markets seized.
3M, graded Aa2 by Moody’s Investors Service and AA- by Standard & Poor’s, is marketing bonds as yields on five-year Treasuries hover at about 0.9 percent after tumbling to the lowest on record last week. Investors are seeking the relative safety of higher-rated industrial corporate bonds as Europe’s debt crisis worsens and the unemployment rate in the U.S. holds above 9 percent.
3M “is covering so many different marketplaces, that from a risk averse standpoint, they’re a pretty safe company,” said William Larkin, a fixed-income money manager who helps oversee $500 million at Cabot Money Management Inc. in Salem, Massachusetts.
Proceeds will be used for general corporate purposes, including the repayment of bonds maturing in November, said a person with knowledge of the transaction, who declined to be identified citing lack of authorization to speak publicly.
Borrowing costs for AA rated companies have declined from 7.75 percent on average at the end of October 2008 to 3.08 percent on Sept. 23, according to Bank of America Merrill Lynch index data.
The coupon on 3M’s bond is the third-lowest this year of that maturity after August issues by the U.K. train-track operator Network Rail Infrastructure Finance Plc and theme-park operator Walt Disney Co., Bloomberg data show. Network Rail sold 1.25 percent notes, while Disney offered 1.35 percent debt.
3M had $4.48 billion of long-term debt on June 30 and $3.38 billion of cash and cash equivalents, according to its most recent quarterly filing.
“In addition to demand for high-quality paper, MMM scarcity value is also playing a role in the demand,” Adrian Miller, a New York-based fixed-income strategist at Miller Tabak Roberts Securities LLC, said in an e-mail, using 3M’s ticker symbol.
In October 2008, 3M’s senior unsecured bonds priced at 99.83 cents on the dollar to yield 275 basis points more than similar-maturity Treasuries, Bloomberg data show.
Citigroup Inc., Deutsche Bank AG, Goldman Sachs Group Inc. and Morgan Stanley led today’s bond sale, Bloomberg data show.
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