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MONDELEZ INTERNATIONAL, INC.

(MDLZ)
  Report
Real-time Estimate Cboe BZX  -  01:07 2022-12-05 pm EST
67.30 USD   -1.49%
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Bond issuance spree as U.S. companies rush before more rate hikes

09/08/2022 | 11:34am EST
FILE PHOTO: Federal Reserve Chairman Jerome Powell arrives to testify before the Senate Banking Committee, in Washington, D.C.

(Reuters) - Companies with the highest credit ratings in the world are engaged in a now-or-never U.S. dollar bond issuance spree to get ahead of a continued spike in borrowing costs and as liquidity in the market is expected to dwindle in the next few months.

The first working day after a long holiday weekend saw 19 investment-grade rated companies raise $35.35 billion, the most to price in a single day this year, according to IFR/Refinitiv.

The 44 tranches of bonds sold by the 19 companies on Tuesday were also the most ever priced in a single day, beating a previous record of 39 tranches sold on September 3 2019, according to Informa Global Markets data. On Wednesday, seven more companies raised $11.25 billion.

"There is a strong motivation to issue debt now rather than later because there are concerns that investment liquidity will be materially reduced as we near the end of a year that has yielded poor returns for investors," said Jessica Lehmann, head of U.S. debt syndicate at HSBC.

Liquidity in bond markets has been patchy in recent months as investors cut back on debt investments that were sensitive to rising interest rates as a result of a hawkish stance by the Federal Reserve to combat runaway inflation.

Year-to-date returns on investment-grade bond investments are down 15.2%, according to the ICE BofA US Corporate Index, alongside a rise in U.S. Treasury yields as interest rates have risen and economic growth slowed.

High-quality companies, however, are still easily able to raise money, investors said.

Retailers like Walmart, Dollar General and Target were among the new bond issuers and they were accompanied by McDonald's, Nestle, Mondelez International among others.

"These companies are still producing strong free cash flow, so from a fundamental perspective, investors aren't concerned about them," said Natalie Trevithick, director and head of investment grade credit at Payden & Rygel, a privately-owned investment management firm.

On average, the 19 new bonds with maturities from three years to 40 years received orders that were 2.74 times the final issue size, according to Informa Global Markets data. Though fairly robust, this oversubscription rate is lower than in August, when $114.7 billion of bonds were issued and received orders 3.29 times the final issue size.

"There is no reason to wait anymore," said the head of US debt syndicate at a European bank who preferred to be unnamed. "It's the devil you know versus the devil you don't," he added.

A BMO Capital Markets credit research note expected more debt issuance, particularly from borrowers that had not issued as much debt this year. It added, those rated in the BBB-band this year made up only 40% of gross Investment-grade bond issuance, down from a 2016-2021 average of 47%.

Companies are trying to get ahead of what they expect to be a tough road ahead in terms of borrowing costs. Already, the year-to-date 2022 new issue coupon levels for investment-grade companies have risen to 4%, the highest level since 2018, according to a CreditSights research note.

The firm expects another $160 billion to $265 billion of new issue supply in the next four months of 2022 to push the year's total to around $1.1 trillion to $1.2 trillion, which is lower than the $1.46 trillion recorded in 2021.

(Reporting by Shankar Ramakrishnan and Matt Tracy, editing by Megan Davies and Nick Zieminski)

By Shankar Ramakrishnan and Matt Tracy


ę Reuters 2022
Stocks mentioned in the article
ChangeLast1st jan.
DOLLAR GENERAL CORPORATION 0.52% 245.2 Delayed Quote.3.45%
MCDONALD'S CORPORATION -0.56% 271.8 Delayed Quote.1.99%
MONDELEZ INTERNATIONAL, INC. -1.43% 67.3 Delayed Quote.3.02%
NESTLÉ S.A. -1.50% 111.3 Delayed Quote.-11.33%
WALMART INC. -1.07% 151.48 Delayed Quote.5.90%
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Financials (USD)
Sales 2022 31 090 M - -
Net income 2022 3 476 M - -
Net Debt 2022 19 534 M - -
P/E ratio 2022 27,9x
Yield 2022 2,11%
Capitalization 93 285 M 93 285 M -
EV / Sales 2022 3,63x
EV / Sales 2023 3,49x
Nbr of Employees 79 000
Free-Float 68,4%
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Number of Analysts 24
Last Close Price 68,31 $
Average target price 71,24 $
Spread / Average Target 4,29%
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Managers and Directors
Dirk van de Put Chairman & Chief Executive Officer
Luca Zaramella Chief Financial Officer & Executive Vice President
Robin S. Hargrove Executive VP-Research, Development & Quality
Javier Polit SVP, Chief Information & Digital Officer
Lois D. Juliber Independent Director
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