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Cat sells bonds worth $3 billion

Bloomberg says Caterpillar’s sale yesterday of $3 billion in bonds will help it pay for debt coming due this year.

The $3 billion of bonds the Peoria, Illinois-based Caterpillar sold yesterday in three issues will bolster the $7.3 billion of committed credit facilities and $2.7 billion of cash the company can use to meet its maturities this year, said Bruce Clark, a corporate debt analyst with Moody’s in New York.

“It’s very constructive,” Clark said in a telephone interview yesterday. “It goes a long way toward addressing the liquidity shortfall.”

Cat’s stock is in raging-bull mode today, apparently for the simple reason that it was able to find buyers for these bonds.

The bond sales included $1.65 billion of five-year, 6.125 percent notes and $1 billion of 10-year, 7.15 percent debt, both of which were priced to yield 425 basis points more than Treasuries of similar maturity. The company also sold $350 million of three-year, 5.75 percent securities at a spread of 437.5 basis points. A basis point is 0.01 percentage point.

The spread is the risk premium Cat has to offer to entice bond buyers. Cat paid a bit less this time than it did for bonds sold in December, but still more than last September (apparently before all hell broke loose).

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Tom Mangan posted at 8:27 am February 6th, 2009 |

More dabbling in corporate bonds

Regular folks are being wooed by high yields on corporate bonds because enticing spreads between corporates and Treasuries. Typically institutional investors buy up nine-tenths of corporate bonds.

Brian Battle, vice president of trading at Performance Trust Capital Partners in Chicago, says investors who want to take the plunge on individual bonds should select companies that seem best-positioned for hard times.

He singled out Caterpillar Inc., among others, as a “pretty good credit” despite declining demand for its heavy equipment in a global recession. As of Tuesday, a 10-year Caterpillar corporate bond carried a 6 percent yield — more than double the 2.80 percent yield of a 10-year Treasury.

Things to keep in mind: High yield reflects low prices; low prices reflect low demand; low demand reflects perception of higher risk.

Here’s an e-how article on how to buy corporate bonds.

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Tom Mangan posted at 7:34 am February 4th, 2009 |