Bloomberg News

PepsiCo Leads Higher U.S. Bond Sales as Yields Reach Record Low

March 02, 2012

PepsiCo (PEP) Inc., the world’s largest snack-food maker, and Clear Channel Outdoor Holdings Inc. (CCO) are leading a 48 percent increase in U.S. corporate bond sales this week as investment-grade yields touched a record low.

PepsiCo (PEP), based in Purchase, New York, sold $2.75 billion of bonds at its lowest borrowing costs ever, according to data compiled by Bloomberg. Clear Channel Outdoor, the biggest billboard owner, raised $2.2 billion of debt, after boosting the size of the offering 76 percent. Sales this week reached $40 billion and more than $145 billion was issued in February, the busiest month since May.

Issuance climbed from $27 billion on signs of an improving economy. Gross domestic product expanded more than initially estimated in the fourth quarter and jobless claims matched the lowest level since 2008. Yields on Bank of America Merrill Lynch’s U.S. Corporate Master index fell to 3.42 percent on Feb. 28, the least in the bank’s data going back to October 1986.

“This is a great opportunity at a relatively attractive cost to extend maturities and get rid of refinancing risk,” John Lonski, chief economist at Moody’s Capital Markets Group in New York, said in a telephone interview.

Returns on bonds from the most creditworthy to the riskiest corporate borrowers reached 1.1 percent in February, the best gains for the month since 2007, according to the Bank of America Merrill Lynch U.S. Corporate & High Yield index.

Speculative-grade bond issuance revived with more than $12 billion of sales, the most in almost a month, as the relative yield on junk debt hit a seven-month low, Bank of America Merrill Lynch index data show. Spreads declined to 594 basis points, the least since Aug. 3.

‘Hunt for Yield’

“There’s definitely a hunt for yield that’s being driven by a low-rate environment,” Abdullah Karatash, head of U.S. fixed-income credit trading at Natixis SA in New York, said in a telephone interview.

PepsiCo’s three-part offering included $750 million of 0.75 percent notes due in March 2015, $1.25 billion of 2.75 percent securities maturing in March 2022 and $750 million of 4 percent, 30-year bonds, the data show. The company previously came to market in August when it raised $1.25 billion of debt, Bloomberg data show.

Clear Channel’s $2.2 billion of eight-year notes were priced to yield 7.625 percent, the lowest interest rate it has received on record, Bloomberg data show. The company, which is controlled by Bain Capital Partners LLC and Thomas H. Lee Partners LP, will use the proceeds from the sale to pay a dividend to shareholders, it said in a Feb. 29 statement.

‘Cautiously Constructive’

Sprint Nextel Corp. (S) sold $2 billion of bonds Feb. 27, four months after raising as much as $4 billion of debt in a Nov. 4 offering.

“Coming into the year we were all a little bit cautious and weary; the mood is cautiously constructive now.” Sabur Moini, a money manager who helps oversee about $2 billion of high-yield debt at Los Angeles-based Payden & Rygel, said in a telephone interview. “The data has certainly been more encouraging.”

Demand for corporate debt has increased as the U.S. economy has shown signs of gaining strength. First-time applications for jobless benefits fell 2,000 last week to 351,000, matching the lowest level since March 2008, the Labor Department said yesterday. Gross domestic product grew at a 3 percent pace in the fourth quarter, up from an initial estimate of 2.8 percent, the Commerce Department said.

Business Activity

Business activity in February accelerated to the fastest pace in ten months, according to the Institute for Supply Management-Chicago. The barometer climbed to 64 from 60.2 in January, the most since April when it was at 65. Readings above 50 signal expansion and the figure exceeded all forecasts in a Bloomberg News survey.

“The fundamental backdrop is very strong,” Jonathan Beinner, chief investment officer and co-head of fixed income at Goldman Sachs Asset Management, said in an interview on Bloomberg Television. “Combine that with very strong technicals and you have a market that is going to keep going up.”

-- With assistance from Deirdre Bolton and Erik Schatzker in New York. Editor: Richard Bravo, Alan Goldstein

To contact the reporter on this story: Sridhar Natarajan in New York at snatarajan15@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net


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