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Guess Who Beats Apple and Alibaba in Bond Sales?

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In dollar denominated corporate bonds, Medtronic, Inc. sold $17 billion in an effort to fund next year’s acquisition with Covidien, a hospital supplies manufacturer in Ireland.

Ranked as the largest corporate bond sale in 2014, Medtronic’s sale pulled in orders of $45 billion, beating out April’s bond offering by Apple of $12 and last month’s offering by Alibaba of $8 billion.

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Low interest rates are still benefiting companies that prefer higher yield US corporate debt opposed to government and Treasury bonds. In the long run, investors who ordered bonds from Medtronic expect for corporations to continue to move toward debt markets such as this.

As stated by Jerry Cudzil, head of US credit trading at TCW, corporations are finding financing cost attractive, which suggests a relatively open market. In looking at top-rated names within the healthcare industry, there is a significant upside, this according to Bert Zimmerman, Principal Global Investors’ senior fixed income analyst.

As reported, $4 billions of what Medtronic sold were 4.625% of 30-year notes and 3.5% of 10-year notes. Also offered was 2.5% of five-year securities, 4.375% of 20-year notes, and 3.15% of seven-year debentures for $2.5 billion coupled with issuing $500 million of five-year floating rate debt and $1 billion of 1.5% three-year bonds.

The initial plan of Medtronic was to fund the expected merger using overseas cash reserves. However, now that US companies are limited by new tax rules specific to using cash held by foreign subsidiaries in the way of tax inversions, Medtronic had to structure the deal differently and turn to borrowing.

Medtronic had recently completed a bridge loan for $11.3 million along with a $5 billion three-year loan for funding some of the purchase. Recently, regulatory approval was granted by foreign antitrust bodies and the US Federal Trade Commission for the Medtronic and Covidien merger but only after an agreement was made by Covidien to sell the drug-coated balloon portion of the business.

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David Goldstein

David is cool! :)

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