Philip Morris Pushes '09 Bond Sales to EU100 Billion

Source from:  Bloomberg 03/18/2009

Bond sales by Philip Morris International Inc. and Deutsche Lufthansa AG today will push European issuance for the year above 100 billion euros ($130 billion), the quickest it has ever reached that level. Borrowers are taking advantage of investor demand for corporate bonds, on which spreads relative to government debt have soared to a near-record in the credit crisis, according to Merrill Lynch & Co. data. Investors are providing a source of funding for high-grade companies by seeking better yields with lower risk, as they retreat from tumbling stock markets. "The race is over for the 100 billion-euro mark," said Suki Mann, senior credit strategist at Societe Generale SA in London. "The benchmark deals today leave us needing to build an Arc to contend with the flood of issuance." Philip Morris, the world's largest publicly traded tobacco company, led the sales, with a planned 2 billion-euro issue, while Lufthansa is raising 850 million euros and Dusseldorf- based E.ON AG, Germany's biggest utility, is selling 750 million euros of bonds, bankers involved in the transactions said. Today's issuance is the most since Feb. 25 and exceeds last week's 3.8 billion euros, according to data compiled by Bloomberg. Today's deals are being offered at "more acceptable" premiums to the companies' existing debt than last week as credit concerns ease, according to Jeroen van den Broek, head of investment-grade strategy at ING Bank NV in Amsterdam. Philip Morris Philip Morris plans to sell its 1.25 billion euros of three-year notes at 205 basis points more than midswaps and its seven-year bonds at a 285 basis-point spread, a banker involved in the deal said. These margins suggest new-issue premiums of 40 and 50 basis points, which are "pretty reasonable," said van den Broek. Daimler AG, the world's second-biggest maker of luxury cars, is also offering three-year bonds in euros today, while Spanish telephone operator Telefonica SA is selling seven-year debt, bankers in the deals said. The extra yield investors demand to buy non-financial investment-grade company bonds in euros narrowed 3 basis points to 310 today, according to Merrill Lynch's Euro Corporates, Non- Financial index. The benchmark was at 357 on Dec. 4, the widest ever. A basis point is 0.01 percentage point. Borrowers have sold a record amount of debt this year on speculation the worst economic slump since the 1930s will make it harder for them to raise money in coming months. The MSCI World Index of stocks has fallen 17 percent since Jan. 1, while government bond yields are close to all-time lows. Corporate bond sales didn't exceed 100 billion euros until May 20 last year and June 7 in 2007, while issuance in 2004 and 2005 never reached that level. "The going might remain good for the next two to three months, motivated by the need -- or desperation -- for companies to shore up liquidity," said Mann at Societe Generale. Enditem