Last week’s corporate bond issues topped $30 billion for only the second time since the Fed started taper talk in late May. Here’s a summary of a few deals.
Sprint Corporation (NYSE:S) dialed up investors and raised a total of $6.5 billion with eight- and 10-year notes in a private placement. The coupon rates for the high-yield paper were 7.25% and 7.875%, respectively. That’s nearly $500 million per year in debt service that Sprint Corporation (NYSE:S) needs to cover. According to the company’s press release, the money will be used “for general corporate purposes, which may include, among other things, redemptions or service requirements of outstanding debt and network expansion and modernization.” December 2016 was the earliest maturity I found for any Sprint Corporation (NYSE:S) bond issue, although there may be other debt planned for redemption. Let’s hope the uses for the money can clear the big debt service hurdle.
The Home Depot, Inc. (NYSE:HD) is doing a little remodeling to its balance sheet with $3.25 billion spread over five-, 10.5-, and 30.5-year tranches with coupon rates ranging from 2.25% to 4.875%. The Home Depot, Inc. (NYSE:HD)’s press release says $1.25 billion will be used to redeem some 5.25% paper that matures in December and the other $2 billion will be used for share buybacks over and above previously announced plans. The combination of lower coupon rates and not paying dividends on $2 billion of shares means the debt service costs for the new issues are roughly the same as for the maturing 5.25% paper. No significant change to cash flow and about 2% of outstanding shares taken off the market sounds like a good deal for Home Depot shareholders.
Starbucks Corporation (NASDAQ:SBUX) brewed a grande-size deal with $750 million of 10-year 3.85% notes. The company’s press release says the money is going toward “general corporate purposes, which may include business expansion, payment of cash dividends on Starbucks Corporation (NASDAQ:SBUX) common stock, the repurchase of common stock under the company’s ongoing share repurchase program, or financing of possible acquisitions.” There are a couple of interesting points in this deal. First, Starbucks only had $550 million in long-term debt, so this deal more than doubles long-term debt. Next, Starbucks has plenty of earnings and cash flow to cover its dividend and a stock repurchase program. The company is expanding, particularly in China, and an acquisition is always a possibility. In short, this looks like a lot of new debt for a company that doesn’t really need to borrow.