Companies looking to tap the debt markets will likely accelerate those plans after Federal Reserve minutes revealed that half-percentage point rises in interest rates might be in the offing to curb inflation.
Interest rates remain low, even after the Fed’s quarter-point rate rise last month. But the hawkish outlook at the U.S. central bank may be sharpening financing plans at major corporations.
“A lot of the supply in the second quarter will be companies that say, with the Fed signaling higher rates, it’s better to get capital now,” said
head of the investment-grade-debt capital-markets business at Mizuho Americas.
Released Wednesday, minutes of the policy-setting Federal Open Market Committee showed members considered raising rates by 50 basis points at their March 15-16 meeting.
“Many participants noted that one or more [half-percentage-point] increases in the target range could be appropriate at future meetings, particularly if inflation pressures remained elevated or intensified,” the minutes said.
Instead, U.S. central bank officials agreed to a more modest rise in the benchmark rate to a range of 0.25% to 0.5%. They also penciled in a series of increases for later this year, moving rates closer to 2%.
In the current quarter, $242.65 billion in U.S. corporate debt will be coming due, followed by $199.64 billion in the next and $197.26 billion in the fourth, according to data provider Dealogic.
Some businesses could opt to just pay down their debt, but many are expected to refinance, corporate bankers said.
According to Dealogic,
Ford Motor Co.
and Phillips 66 are among businesses with more than $1 billion in debt maturing in the second quarter—in AT&T’s case, more than $20 billion.
All four companies declined to comment. But bankers think the current market’s appeal will be fading over time.
“There is still that mentality of taking advantage of healthy market conditions and locking in rates with the concern that we might see rates continue to rise from here,” said
head of the investment grade syndicate at
Bank of America Corp.
“Even with the increase in interest rates, financing costs are still attractive,” noted
global co-head of the investment-grade debt capital markets business at
Deutsche Bank AG
After Russia invaded Ukraine in late February, finance executives suddenly found themselves plying choppier markets. But the turmoil seemed to have little effect on bond sales. According to data provider Refinitiv, companies sold $458.06 billion in U.S. investment grade-rated corporate bonds in the first quarter, roughly in line with the prior-year period.
Some companies are locking in interest rates as they prepare to hedge coming maturities.
Johnson Controls International
PLC, a building products and energy services company, has just under $1 billion in debt coming due in the next 12 months. The company is hedging rates for most of the debt it plans to refinance, Finance Chief
Many businesses in recent months took advantage of still-low rates to bring down their financing costs.
Boston Scientific Corp.
, a maker of medical devices, in March priced €3 billion, equivalent to $3.27 billion, in senior notes in Europe and tendered $2.85 billion in the U.S.
The transaction was meant to diversify the company’s debt portfolio, adding more debt in Europe to better balance its exposure to the U.S., CFO
said. “We were able to bring down our overall debt cost by 80 basis points,” he said.
Businesses planning to issue debt over the coming weeks will have to be flexible on timing, bankers said.
“It’s a combination of thoughtful consideration and luck,” said
chief financial officer at
, referring to finding the right moment to go to market. The Houston-based food-service company refinanced $1.25 billion in debt late last year and plans to pay down about $450 million in debt this year.
“We are constantly assessing opportunities that the banks are bringing to us,” Mr. Alt added, speaking of the company’s liability management.
The FOMC next meets in early May.
Write to Nina Trentmann at [email protected]
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