There is a new issue corporate bond today from Caterpillar (CAT) and the pricing of that issue is troublesome – quite troublesome, and reflective of the dire straits of the credit market and the dysfunction which has engulfed the corporate market.
Caterpillar announced a 5 year and a 10 year this morning. The size has yet to be determined, but it is likely to be around $500 million for each tranche
In early August Caterpillar brought a 5 year bond to market, the 4.90 of August 2013. That bond priced 175 basis points cheap to the benchmark 5 year Treasury note. With the turmoil in the credit markets the last several weeks, the issue has widened on spread and this morning it was quoted 225/ 210.
The talk on the new issue is T + 325 basis points. That is fully 100 basis points cheap to the outstanding issue and 150 basis points above where the same maturity was priced six weeks ago
This comment explains the lingo.
Also from Megan McArdle….
American Honda (the finance arm of the car company) just issued 5 and 10 year bonds similar to Catapiller. They are rated AA, and the offering went off at 400 over.
These are top notch industrial companies. I wonder what the less then top notch are being forced to pay right now?