U.S. credit markets soaked up $14.75-billion (U.S.) of new corporate debt on Tuesday, the second busiest day this year, due in no small part to a massive debt issue from Cenovus Energy.
The oil and gas company being spun out of EnCana raised $3.5-billion to create a balance sheet, well above the $3-billion target Cenovus set for the issue. The Calgary-based company is borrowing in U.S. dollars in part because it sells a commodity priced in U.S. dollars: Finance 101 preaches matching assets and liabilities.
Tuesday also saw a $5-billion bond sale from Shell, $2-billion from Newmont Mining and $1.5-billion from JP Morgan. The total volume of new issues ranks second to January 29's placement of $15.9-billion, according to a report late Tuesday from TD Waterhouse.
The Cenovus issue was led by three global investment banks, one of which happens to be Toronto-based: Bank of America/Merrill Lynch, Barclays and RBC Dominion Securities.
The debt was sold in three maturities, and here's how it all broke down.
Cenovus raised $800-million in five year bonds that were priced to pay a 4.52 per cent interest rate. That is a premium of 212 basis points to the comparable U.S. government bond.
There were $1.3-billion of 10-year bonds sporting a 5.71 per cent rate, or 225 basis points over a U.S. Treasury issue.
And there was $1.4-billion of 30-year debt, with a 240 basis point spread to Treasurys provided by the 6.78 per cent interest rate.
Cenovus is expected to start trading as an independent company in November. If the EnCana split comes off the rails - it was postponed in the spring - the company must buy back this new debt at 101 cents on the dollar.
Andrew Willis