Friday, 9 July 2010

Time Warner Sells $3 Billion of Debt as Weekly Issuance Volume Doubles

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Time Warner Inc., owner of the Warner Bros. film studio and TBS cable-television channel, helped lead $16.2 billion of U.S. corporate bond sales this week as issuance more than doubled.

Time Warner sold $3 billion of debt in a three-part offering on July 7, the New York-based company’s biggest issue since November 2006, according to data compiled by Bloomberg. Overall issuance rose from $7.69 billion last week.

Corporate bond sales jumped as a drop in jobless claims and higher-than-forecast sales at retailers bolstered investor confidence that the economy is stabilizing. The data, along with reports that European Union regulators are carrying out stress tests on 91 banks, was a “positive” for credit markets, said Anthony Valeri, a market strategist at LPL Financial.

Issuers “are taking advantage of a better tone this week,” said Valeri, who is based in San Diego. “The same-store sales kind of contradict the double-dip fears out in the marketplace. With the upcoming stress tests, the fact they’re moving forward and we got some additional clarity was a positive for credit markets.”

Investment-Grade Sales

Investment-grade issuance more than doubled to $13.8 billion this week, while high-risk, high-yield debt rose 47 percent to $2.44 billion, Bloomberg data show. High-yield debt is rated below Baa3 by Moody’s Investors Service and BBB- by Standard & Poor’s.

The extra yield investors demand to own investment-grade corporate bonds instead of U.S. Treasuries fell 4 basis points to 204 basis points, according to the Bank of America Merrill Lynch U.S. Corporate Master Index. Average yields dipped to 4.3 percent on July 6, the lowest since February 2004, the index data show, before ending at 4.35 percent, down one basis point for the week. A basis point is 0.01 percentage point.

Even as they increased from last week, investment-grade corporate sales fell short of the $14.8 billion 2010 weekly average, and junk bond sales were less than the $4.5 billion mean, Bloomberg data show.

“On a net basis, there’s just not a lot of incremental supply in the names that investors want,” said Justin D’Ercole, head of investment-grade syndicate for the Americas at Barclays Capital. The new-issue calendar “will remain active, but not overwhelming.”

Forecast Cut

Bank of America Merrill Lynch cut its forecast for U.S. investment-grade debt sales in 2010 to $700 billion from $800 billion, citing growth in company cash balances, according to a report earlier this week.

In response to the recession, nonfinancial borrowers boosted cash and equivalents to $1 trillion in the first quarter of this year from $814 billion in 2008, according to Bank of America data.

Spreads on high-yield, high-risk debt narrowed for the first time in three weeks, tightening 25 basis points to 688 basis points, according to Bank of America Merrill Lynch index data. The absolute yield on the debt fell 18 basis points to 9.02 percent, the data show.

Initial claims for benefits decreased by 21,000 in the week ended July 3 to 454,000, Labor Department figures showed yesterday in Washington. Economists had forecast claims would fall to 460,000, according to the median of 36 projections in a Bloomberg survey.

Retail Sales

Sales at stores open at least a year rose more than analysts projected at Nordstrom Inc., J.C. Penney Co. and Macy’s Inc., according to estimates compiled by Retail Metrics Inc. Same-store sales are a key indicator of a retailer’s growth because they exclude results from new and closed locations.

The yield on 10-year Treasuries, the market bellwether, rose above 3 percent for the first time this month yesterday and ended at 3.05 percent, while the Standard & Poor’s 500 index rallied 5.4 percent for the week.

Time Warner divided its $3 billion offering evenly among five-year, 10.5-year and 30-year securities, according to data compiled by Bloomberg. The five-year debt yields 140 basis points more than similar-maturity Treasuries, the 10.5-year notes yield 175 basis points more than benchmarks, and the 30- year bonds pay a 215 basis-point spread.

The company will use the proceeds to redeem as much as $1 billion of 5.5 percent notes maturing in November 2011, $2 billion of 6.875 percent debt due in May 2012, and $1 billion of 9.125 percent notes dated January 2013, according to a prospectus filed with the U.S. Securities and Exchange Commission and data compiled by Bloomberg.

Net Volume

The planned repurchases show that net new issuance remains low, D’Ercole said. “Even when borrowers issue new debt, they’re taking bonds out of the market at the same time,” he said.

Kreditanstalt fuer Wiederaufbau, the German development bank, led investment-grade debt sales, issuing $5 billion of securities, Bloomberg data show.

Fidelity National Information Services Inc., the payment- processor that private-equity firms including Blackstone Group LP sought to buy, led junk sales this week, issuing $1.1 billion of senior notes, the data show. The company previously planned to sell $1.2 billion of the debt, according to a person familiar with the transaction, who declined to be identified because terms weren’t yet set.

Proceeds will be used to help repurchase stock and to repay debt used to buy Metavante Technologies Inc., a technology products provider, the company said in a July 6 statement.

Earnings Season

Speculative-grade borrowers may hold off on issuing debt as companies begin reporting second-quarter earnings next week, said Sabur Moini, who manages $1.7 billion of high-yield debt at Payden & Rygel in Los Angeles.

“Earnings season tends to create volatility,” he said. “I don’t see the calendar growing dramatically in July and August.”

The so-called earnings season typically begins with a report from Alcoa Inc., the largest U.S. aluminum maker, which is scheduled for the market close on July 12.

Gentiva Health Services Inc., the U.S. home-nursing company that is buying Odyssey HealthCare Inc., plans to sell $305 million of eight-year notes, the Atlanta-based company said in a May 24 regulatory filing, without specifying the timing of the transaction.

To contact the reporter on this story: Sapna Maheshwari in New York at

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