By Dena Aubin and Lynn Adler
NEW YORK, Feb 18 (Reuters) - Borrowers including Freddie Mac and Swiss drugmaker Roche tapped the U.S. debt market for more than $27 billion in bonds on Wednesday as a search for yield drew investors to the highly rated deals.
Both the Freddie Mac and Roche deals were records for the U.S. market and indicate bond investors are reaching beyond the safety of Treasuries as credit markets begin to thaw.
Freddie Mac, the No. 2 U.S. home funding company, sold $10 billion in three-year notes, the largest single new issue since the agency started its global note program over a decade ago. The issue was oversold by about 30 percent, according to Freddie's treasurer.
'A lot of cash that's been sitting on the sidelines that might be a little cautious about going directly into equities...is looking for high-quality. non-Treasury opportunities,' said Stephen Wood, senior portfolio strategist at Russell Investments in New York, which has $150 billion of assets under management.
Roche's $16 billion issue was the largest U.S. dollar-denominated corporate bond sale in history, topping the $10.99 billion sold by General Electric Capital Corp in 2002, according to Thomson Reuters data. The Roche offering was also heavily oversubscribed, market sources said.
NOT BUSINESS AS USUAL
'It's a massive issue, they're highly rated and they're coming at prices which in more normal times would be exceedingly wide,' said Scott MacDonald, head of research at Aladdin Capital in Stamford, Connecticut.
Roche is rated 'Aa1' the second-highest rating, by Moody's Investors Service, and 'AA-minus,' or two notches lower by Standard & Poor's. Moody's has Roche on review for a downgrade.
'In these kinds of markets these are the kinds of issuers that can issue,' MacDonald said. 'You have a company coming in and doing $16 billion, double-A rated and trading over 300 basis points. I don't think that's business as usual; it's a sign of the times.'
Roche paid yields as high as 365 basis points over Treasuries for a 30-year maturity, about 345 basis points over Treasuries for 10-year notes and 335 basis points over Treasuries for five- and three-year notes.
Roche is raising money to help finance its $42 billion hostile offer for U.S. biotechnology company Genentech Inc . Roche has said it plans to use a combination of its own funds, bonds, commercial paper and bank financing for the acquisition.
The worst recession in decades has kept many investors sticking to the safest bonds, initially U.S. Treasuries, but low yields in that market have sent buyers into higher-quality corporate bonds in recent months. Roche fits the bill as an international health-care company with the cash flow to weather a global financial crisis well.
'There is cash available for the right borrower, for the right story,' said one buy-side trader looking at the Roche deal. 'But that's not going to be the case for everybody.'
FREDDIE'S ACCESS IMPROVING
Demand for Freddie Mac's deal indicates the agency's growing access to credit markets and steadily improving funding costs, company Treasurer Peter Federico told Reuters. That demand was unrelated to President Barack Obama's new mortgage rescue plan, Federico said.
Obama's plan pledges up to $275 billion to stem home foreclosures in a bid to lift the economy out of recession and expands the ability of Freddie Mac and Fannie Mae to grow their mortgage investments and tap more federal funding if needed. For details, click on
The government is relying on government-controlled Freddie Mac and Fannie Mae to purchase mortgage bonds and stabilize the worst housing market since the Great Depression.
Freddie Mac's issue comes close on the heels of a record $7 billion five-year offering from Fannie Mae this month, and more massive note deals are likely.
'The liquidity has been coming our way and we've been trying to take advantage of it when we get it,' said Federico.
(Editing by Leslie Adler) Keywords: BONDS SALES (dena.aubin@thomsonreuters.com; +1-646-223-6325; Reuters Messaging: dena.aubin.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
NEW YORK, Feb 18 (Reuters) - Borrowers including Freddie Mac and Swiss drugmaker Roche tapped the U.S. debt market for more than $27 billion in bonds on Wednesday as a search for yield drew investors to the highly rated deals.
Both the Freddie Mac and Roche deals were records for the U.S. market and indicate bond investors are reaching beyond the safety of Treasuries as credit markets begin to thaw.
Freddie Mac, the No. 2 U.S. home funding company, sold $10 billion in three-year notes, the largest single new issue since the agency started its global note program over a decade ago. The issue was oversold by about 30 percent, according to Freddie's treasurer.
'A lot of cash that's been sitting on the sidelines that might be a little cautious about going directly into equities...is looking for high-quality. non-Treasury opportunities,' said Stephen Wood, senior portfolio strategist at Russell Investments in New York, which has $150 billion of assets under management.
Roche's $16 billion issue was the largest U.S. dollar-denominated corporate bond sale in history, topping the $10.99 billion sold by General Electric Capital Corp in 2002, according to Thomson Reuters data. The Roche offering was also heavily oversubscribed, market sources said.
NOT BUSINESS AS USUAL
'It's a massive issue, they're highly rated and they're coming at prices which in more normal times would be exceedingly wide,' said Scott MacDonald, head of research at Aladdin Capital in Stamford, Connecticut.
Roche is rated 'Aa1' the second-highest rating, by Moody's Investors Service, and 'AA-minus,' or two notches lower by Standard & Poor's. Moody's has Roche on review for a downgrade.
'In these kinds of markets these are the kinds of issuers that can issue,' MacDonald said. 'You have a company coming in and doing $16 billion, double-A rated and trading over 300 basis points. I don't think that's business as usual; it's a sign of the times.'
Roche paid yields as high as 365 basis points over Treasuries for a 30-year maturity, about 345 basis points over Treasuries for 10-year notes and 335 basis points over Treasuries for five- and three-year notes.
Roche is raising money to help finance its $42 billion hostile offer for U.S. biotechnology company Genentech Inc . Roche has said it plans to use a combination of its own funds, bonds, commercial paper and bank financing for the acquisition.
The worst recession in decades has kept many investors sticking to the safest bonds, initially U.S. Treasuries, but low yields in that market have sent buyers into higher-quality corporate bonds in recent months. Roche fits the bill as an international health-care company with the cash flow to weather a global financial crisis well.
'There is cash available for the right borrower, for the right story,' said one buy-side trader looking at the Roche deal. 'But that's not going to be the case for everybody.'
FREDDIE'S ACCESS IMPROVING
Demand for Freddie Mac's deal indicates the agency's growing access to credit markets and steadily improving funding costs, company Treasurer Peter Federico told Reuters. That demand was unrelated to President Barack Obama's new mortgage rescue plan, Federico said.
Obama's plan pledges up to $275 billion to stem home foreclosures in a bid to lift the economy out of recession and expands the ability of Freddie Mac and Fannie Mae to grow their mortgage investments and tap more federal funding if needed. For details, click on
The government is relying on government-controlled Freddie Mac and Fannie Mae to purchase mortgage bonds and stabilize the worst housing market since the Great Depression.
Freddie Mac's issue comes close on the heels of a record $7 billion five-year offering from Fannie Mae this month, and more massive note deals are likely.
'The liquidity has been coming our way and we've been trying to take advantage of it when we get it,' said Federico.
(Editing by Leslie Adler) Keywords: BONDS SALES (dena.aubin@thomsonreuters.com; +1-646-223-6325; Reuters Messaging: dena.aubin.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.