Blue windows on building, geometric patterns

The first Monday in May saw investment-grade corporate issuers raise $22.15 billion through bond sales. Apple issued $8.5 billion, which was the largest deal of the day.

Starbucks Corporation plans to reopen more than 85% of company-operated U.S. stores this week.

The company’s stock began the year at $90, traded down to $50 in mid-March, and was last at $72, giving the company a market capitalization of $84 billion.

The company issued $3 billion of unsecured notes on Monday, May 4, 2020, bringing its total debt outstanding to $16 billion. Given increased leverage, the company’s credit rating was downgraded by Fitch Ratings from BBB+ to BBB. The ratings outlook, the most likely direction of ratings action, is negative with the Big Three rating agencies.

  • $500 million two-year bonds were priced at 1.30%, +115 basis points greater than U.S. Treasuries
  • $1.25 billion 10-year bonds were priced at 2.55%, +195 basis points greater than U.S. Treasuries
  • $1.25 billion 30-year bonds were priced at 3.50%, +225 basis points greater than U.S. Treasuries

U.S. Treasuries are considered the “risk-free” rate. Corporations issue at a spread over Treasuries because they have both credit rating and default risk. J. Crew, Hertz, Norwegian Cruise Line and Neiman Marcus are all bracing for bankruptcy.

Corporations have rushed to the bond market to bolster cash reserves. Why not, with rates relatively low?

Download the current rate sheet.

For more information on this topic, or to learn how Baker Tilly public sector investment services specialists can help, contact our team.

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