Time Warner, Philip Morris Lead $8.6 Billion Sales

Source from:  Bloomberg 11/19/2008

Nov. 14 (Bloomberg) -- Time Warner Cable Inc., the second- largest U.S. cable operator, and cigarette maker Philip Morris International Inc. led sales of $8.6 billion of debt this week, putting November on pace for the busiest month since June. Corporate bond issuance has reached $18.6 billion in the U.S. since the end of October, compared with a monthly average of about $26 billion for the last three months, according to data compiled by Bloomberg. Sales fell from $10.8 billion last week, when Altria Group Inc., maker of Marlboro cigarettes, sold $6 billion of debt in the largest offering since May. The sales signal the Federal Reserve's program to buy commercial paper is helping unfreeze credit markets. Corporate borrowing costs fell for the third straight week, with the extra yield, or spread, investors demand to own investment-grade securities instead of similar-maturity Treasuries shrinking to 588 basis points today from a record 618 basis points on Oct. 29, according to Merrill Lynch & Co.'s U.S. Corporate Master index. "We see a little bit of lubrication going on in the system, which is good, rather than all the cogs rusting up," said Marilyn Cohen, chief executive officer of Envision Capital Management in Los Angeles. "The treasurers know full well that there is a ton of money sitting on the sidelines waiting for a home and as long as they're willing to issue bonds at a humongous spread and they're decent quality, it's getting done." Philip Morris, the world's largest publicly traded tobacco company, sold $1.25 billion of 6.875 percent debt maturing in 2014 on Nov. 12 in its first dollar debt sale since May. The notes are rated A2 by Moody's Investors Service and A by Standard & Poor's. 'Huge' Demand The New York-based company's debt was priced to yield 463 basis points more than Treasuries, compared with a spread of 177 basis points on five-year notes it issued in May. A basis point is 0.01 percentage point. The existing 2013 debt traded at 95.6 cents on the dollar to yield 6 percent the day Philip Morris sold the new 6.875 percent securities, according to Trace, the bond- price reporting system of the Financial Industry Regulatory Authority. Cohen said the attractive yields prompted investors to put in orders for about six times as many bonds as were offered. "I've put in to buy some but I haven't gotten them," said Cohen, who manages $125 million in fixed-income assets. "The oversubscription is huge." Time Warner Cable sold $2 billion of debt yesterday to help fund a $10.9 billion special dividend. The New York-based company issued $750 million of 8.25 percent notes due in 2014 and $1.25 billion of 8.75 percent securities maturing in 2019. 'Glad We're Done' Georgia Power Co., the Atlanta-based electricity company owned by Southern Co., sold $400 million of senior unsecured 6 percent notes due in 2013 that priced to yield 360 basis points more than Treasuries. The credit markets are "not healthy yet," said David Brooks, managing director of capital markets for Southern Co. "We're fortunate to have an A credit rating, which makes it easier when we do go to the market." Companies that want to sell debt are being forced to offer extra yield to lure investors amid the worst financial crisis since the Great Depression. Investment-grade corporate bonds are headed for their worst year since at least 1972, having lost 12.8 percent on average in 2008, according to Merrill data. Sales of the debt have amounted to $662.7 billion this year, 27 percent less than the $911.7 billion issued in the same period of 2007, Bloomberg data show. 'Not Affordable' "What do you call a flurry?" said Guy Lebas, chief economist and fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. "Nobody is going to issue new money in these markets. It's just not affordable." Investment-grade corporate bonds yield 8.7 percent, compared with an average of about 6 percent over the last 10 years, according to Merrill index data. Sales were below their weekly average of $16 billion in 2008. "The yield on high-quality corporate debt looks very compelling versus many asset classes out there," said Greg Haendel, who helps oversee $6.2 billion in fixed-income assets as an investment manager at Transamerica Investment Management in Los Angeles. "There's still significant opportunity in the new issue market, but with that being said, everybody recognizes that. That's why there's been such massive demand." BAT International Finance Plc, the funding arm of British American Tobacco Plc, sold $1 billion of five- and 10-year notes today, and Alabama Power Co., the Birmingham, Alabama-based utility owned by Southern Co., sold $250 million of notes at more than double the yield over benchmarks it paid on similar debt a year ago, according to data compiled by Bloomberg. Southwestern Public Service Co., the Amarillo, Texas-based unit of Xcel Energy Inc., sold $250 million of 10-year notes. Boeing Capital Corp., a unit of the world's largest aerospace company, Chicago-based Boeing Co., and American Water Works Co. of Voorhees, New Jersey, the biggest U.S. private- sector water utility, are among companies with offerings in the new issue pipeline. Enditem