3rd UPDATE: Goldman, High-Grade Cos Selling $16 Billion In Bonds
January 29 2009 - 4:19PM
Dow Jones News
In a sign of renewed investor confidence, Goldman Sachs Group
Inc. (GS) on Thursday sold $2 billion in 10-year notes without
government backing and nonfinancial investment-grade firms sought
to raise almost $14 billion in bond deals.
Oil producer ConocoPhillips (COP) was marketing $6 billion in
bonds, and AT&T Inc. (T) $5.5 billion, among the largest deals
of the day.
Goldman Sachs and other financial institutions have sold
billions in short-term bonds at cheap rates through the Federal
Deposit Insurance Corp.'s Temporary Liquidity Guarantee Program.
The program was aimed at helping banks and finance units, beaten
down by investor suspicion, to refinance debt and boost their
capital positions. Goldman sold $14.5 billion in notes under the
program, which is guaranteeing a total of $156 billion, according
to data provider Dealogic.
And financials largely avoided selling unguaranteed debt in
great numbers, until Thursday. Besides General Electric Capital
Corp.'s $4 billion deal Jan. 6, only $109 million of debt had been
issued by financials with no government backing since then,
according to Dealogic.
"The successful placement of unguaranteed, unsecured financial
debt is a critical signpost pointing to further thawing in the
credit markets," said Jon Duensing, principal at Smith Breeden
Associates.
Banks have until June 30 to issue debt under the FDIC program,
which guarantees it until June 30, 2012. Goldman Sachs may have
been asked by the government to test the market for unguaranteed
financial debt to see how much the backing would be worth if
extended to 10 years, bond investors said.
A Goldman Sachs spokesman declined to provide any details on the
transaction.
One of the investors characterized the spread, or risk premium,
of the new Goldman note, sold at 500 basis points over Treasury
yields, as 30 to 50 basis points over existing Goldman debt. After
the note sold, the spread tightened to around 470 basis points over
Treasurys, the person said.
Meanwhile, investors flocked to bonds from nonfinancial
companies as well. Deals were oversubscribed and were seen offering
spreads at the lower end of expected ranges, showing investors were
happy to take less return to own the new bonds.
For instance, there were about $15 billion in orders for the
ConocoPhillips deal, according to a person familiar with that
transaction. The concession was about 40 to 45 basis points over
existing debt, while some deals earlier saw concessions hovering
around 100 basis points to entice investors.
Besides ConocoPhillips and AT&T, other deals included $1.25
billion from Hess Corp. (HES) and $1.15 billion from General Mills
Inc. (GIS).
The new issues generally offered attractive yields for
investors. The Hess 10-year note was priced to yield 8.172%.
Meanwhile, higher-rated ConocoPhillips, which on Wednesday posted a
$31 billion fourth-quarter loss, could offer less, with a yield
seen around 5.7%. A combination of factors - such as government
programs kicking in, a possible "bad bank" scenario and built-up
cash sitting on the sidelines - has caused a sharp rally in the
high-grade corporate bond market, said Lindsey Spink,
investment-grade trader at AXA Investment Managers in Greenwich,
Conn. Also, "many people have perceived credit as the cheapest
asset class for 2009, with stock market volatility," he said.
Indeed, funds that had been inactive in high-grade corporate
bonds for a couple of years because of their interest in other
fixed-income assets, have come back to the market, said one
syndicate official, who declined to be named.
"Receptivity by investors around issuance is very similar to
periods before the credit crisis began and periods when there was
stability," such as the first five months of 2008, said Tom Lewis,
head of U.S. investment-grade syndicate at Morgan Stanley (MS).
-By Romy Varghese, Dow Jones Newswires; 201-938-4287;
romy.varghese@dowjones.com
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