Corporate Bond Floodgates Could Open After $7 Billion SAB/Miller Offering

SABMiller Holdings just served up a huge bond offering of $7 billion and it appears to be the largest corporate bond offering in about a year.  The company is refinancing its short-term borrowings for its Fosters acquisition.  Of the offering:

• $1 billion went into 3-year notes at 150 basis points over Treasuries;
• $2 billion went into 5-year notes at 165 basis points over Treasuries;
• $2.5 billion went into 10-year notes at 185 basis points over Treasuries;
• and another $1.5 billion went into 30-year bonds at 200 basis points over Treasuries.

Why does this matter for U.S. investors?  The company effectively trimmed its borrowing costs in the offering but this shows that other companies may decide to capitalize on the very low rates all over again.  Hopefully these companies will not borrow money to buyback stock, but they might be able to do other avenues to generate shareholder growth or to boost income.

JON C. OGG