<TABLE cellSpacing=0 cellPadding=0 width=* border=0><TBODY><TR><TD class=text2 vAlign=top>Summer of the Floating Rate
</TD></TR><TR><TD class=text2 vAlign=top>Companies that want to remain in the public markets are embracing floating-rate notes.
</TD></TR><TR><TD class=text2 vAlign=top>CFO.com</TD></TR><TR><TD class=text2 vAlign=top></TD></TR></TBODY></TABLE>It's a new season for capital raising.
With the economy recovering and the Federal Reserve poised to hike interest rates for the first time in several years, investors are bailing out of the bond market, forcing corporations to seek alternative funding sources or become more creative in the public markets.
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</IFRAME></NOLAYER><ILAYER id=ph5 height="280" width="336" left="0" visibility="hide"></ILAYER></TD></TR></TBODY></TABLE>Indeed, last month investors yanked out a net $17.5 billion from bond mutual funds, the largest monthly outflow ever according to The Wall Street Journal, citing data from Lipper Inc. This includes $4.8 billion that was redeemed from junk-bond funds, the largest amount since Lipper started tracking this data in 1997.
So, what's an issuer to do?
Companies that want to remain in the public markets are embracing floating-rate notes. In fact, companies have sold more floating-rate paper than fixed-rate bonds in recent months as investors have been seeking protection from the expected rise in interest rates.
The coupons of floating-rate notes are typically set over the London interbank offered rate (LIBOR) and are usually reset every three months. Issuers like them because they are a source of relatively low-cost financing. In fact, highly rated companies frequently hedge rising interest rates by swapping a floating rate for a fixed rate in the interest-rate swaps market.
Since the beginning of December, companies have issued $177.1 billion of floating-rate notes compared with $175.3 billion of fixed-rate bonds, according to Dow Jones, citing Thomson Financial data. In fact, sales of floating-rate notes have exceeded those of fixed-rate bonds in every month this year but March and April, the wire service added.
So far this month, added Dow Jones, $14.1 billion of floating-rate notes have been brought to market, compared with just $11.7 billion of fixed-rate debt securities. On Tuesday alone, Wells Fargo & Co. issued $2.5 billion of floating-rate notes with an initial maturity of 13 months and a final maturity of five years.
According to Reuters, the notes will pay 0.03 percentage point less than LIBOR in their first 13 months; 0.01 percentage point less than LIBOR the following year; 0.01 percentage point more than LIBOR in the third year; and 0.03 percentage point more than LIBOR in the final two years.
Last week, General Electric Capital Corp. sold $2 billion of floating-rate notes, including $1.5 billion of three-year notes, which were priced at three-month LIBOR plus 0.06 percentage point, and $500 million of five-year notes, which were priced at three-month LIBOR plus 0.14 percentage point.
Banc of America Securities, HSBC Securities, and Merrill Lynch managed the deal. Jim Probert, head of the U.S. high-grade syndicate desk at Banc of America, said, "We have found demand for floating-rate notes to be extremely deep and reflective of the fact that investors are seeking to buy defensive securities in a rising interest rate environment," according to Dow Jones.
</TD></TR><TR><TD class=text2 vAlign=top>CFO.com</TD></TR><TR><TD class=text2 vAlign=top></TD></TR></TBODY></TABLE>It's a new season for capital raising.
With the economy recovering and the Federal Reserve poised to hike interest rates for the first time in several years, investors are bailing out of the bond market, forcing corporations to seek alternative funding sources or become more creative in the public markets.
<TABLE cellSpacing=0 cellPadding=0 align=center border=0><TBODY><TR><TD vAlign=top align=middle>
So, what's an issuer to do?
Companies that want to remain in the public markets are embracing floating-rate notes. In fact, companies have sold more floating-rate paper than fixed-rate bonds in recent months as investors have been seeking protection from the expected rise in interest rates.
The coupons of floating-rate notes are typically set over the London interbank offered rate (LIBOR) and are usually reset every three months. Issuers like them because they are a source of relatively low-cost financing. In fact, highly rated companies frequently hedge rising interest rates by swapping a floating rate for a fixed rate in the interest-rate swaps market.
Since the beginning of December, companies have issued $177.1 billion of floating-rate notes compared with $175.3 billion of fixed-rate bonds, according to Dow Jones, citing Thomson Financial data. In fact, sales of floating-rate notes have exceeded those of fixed-rate bonds in every month this year but March and April, the wire service added.
So far this month, added Dow Jones, $14.1 billion of floating-rate notes have been brought to market, compared with just $11.7 billion of fixed-rate debt securities. On Tuesday alone, Wells Fargo & Co. issued $2.5 billion of floating-rate notes with an initial maturity of 13 months and a final maturity of five years.
According to Reuters, the notes will pay 0.03 percentage point less than LIBOR in their first 13 months; 0.01 percentage point less than LIBOR the following year; 0.01 percentage point more than LIBOR in the third year; and 0.03 percentage point more than LIBOR in the final two years.
Last week, General Electric Capital Corp. sold $2 billion of floating-rate notes, including $1.5 billion of three-year notes, which were priced at three-month LIBOR plus 0.06 percentage point, and $500 million of five-year notes, which were priced at three-month LIBOR plus 0.14 percentage point.
Banc of America Securities, HSBC Securities, and Merrill Lynch managed the deal. Jim Probert, head of the U.S. high-grade syndicate desk at Banc of America, said, "We have found demand for floating-rate notes to be extremely deep and reflective of the fact that investors are seeking to buy defensive securities in a rising interest rate environment," according to Dow Jones.
