NEW YORK (Reuters) - EBay Inc on Thursday joined an elite group of borrowers to issue debt at record low rates, suggesting demand for corporate debt remained high.
The Internet commerce company, which on Wednesday posted better-then-expected quarterly profit and forecast stronger holiday earnings, issued its first-ever bonds, selling $1.5 billion of debt in a three-part sale.
The sale included $400 million of three-year notes that priced at a coupon of 0.875 percent, according to IFR, a Thomson Reuters service.
Wal-Mart Stores Inc earlier this week sold three-year notes with a record low coupon of 0.75 percent.
EBay’s issue tied for second-lowest coupon with recent issues by Microsoft Corp and PepsiCo Inc, which also carried coupons of 0.875 percent.
Debt issuers are selling bonds as demand for corporate and other debt continues, helped by massive flows into bond funds.
“There’s huge demand for spread product, everyone’s looking for yield, “ said Mirko Mikelic, senior portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan.
“If you even have an inclination of wanting to put debt on your balance sheet, or refinance, now’s definitely the time to do it. It’s at historic lows.”
Few technology companies need to borrow money in the fixed income market as many generate a lot of cash, he said. Microsoft, for example, has a cash pile of about $37 billion, although much of that is overseas and may be subject to tax if repatriated.
“The Fed is on hold in terms of rates at least till the second half of next year, so its going to be a great time to issue if you need to come to market,” said Mikelic. “Even if the need may not be immediately there. It’s amazing.”
EBay Chief Financial Officer Bob Swan made reference to capitalizing on historically low U.S. interest rates in the company’s earnings call.
“While we had a strong balance sheet, we only had $915 million in the U.S. at the end of the third quarter. As such, we’ve announced a series of steps that we believe will enable us to leverage our strong offshore cash position more effectively and maintain the flexibility to capitalize on M&A opportunities in both the U.S. and abroad, while redistributing excess cash to shareholders,” he said.
As part of that plan, eBay’s board approved the creation of a commercial paper program of up to $1 billion to fund a portion of “Bill Me Later” receivables. The board also approved the issuance of up to $1.5 billion in term debt financing.
The second tranche of Thursday’s deal, $600 million of 5-year notes, priced at a coupon of 1.625 percent. That places it in the top two of the Thomson Reuters Data/IFR Historical Low Coupon Tables.
Wal-Mart’s recent 5-year sale achieved a record coupon of 1.50 percent. EBay’s sale is tied with a 5-year sale by Microsoft.
EBay also sold $500 million of 10-year notes at a coupon of 3.25 percent. Johnson & Johnson tops the 10-year table with a 2.95 percent coupon, followed by Microsoft at 3.00 percent, Raytheon at 3.125 percent, PepsiCo at 3.125 percent and Raytheon at 1.625 percent.
Additional reporting by Christopher Reich, Karen Brettell and Ciara Linnane; Editing by Padraic Cassidy