“How in the world can the National Statistical Rating Agencies rate 50-year bonds or even 30-year bonds for one corporation? Who knows what CAT’s cash flows or EBITDA will be in even five or ten years, let alone whether or not (in a competitive marketplace) CAT will have survived that long. It’s nuts!!!….
…And the yields and spread to U.S. Treasuries of these CAT bonds are also nuts…but that’s because of the Fed and their manipulation of market rates, which has once again distorted investment decisions.”, Mike Perry, former Chairman and CEO, IndyMac Bank
Caterpillar Sells 50-Year Bonds
MIKE CHERNEY and
VIPAL MONGAMay 5, 2014 10:28 p.m. ET
Caterpillar Inc. sold 50-year bonds on Monday, taking advantage of investor demand for income-generating securities while interest rates remain low.
The construction-equipment maker is the first U.S. company, excluding financial institutions, to sell 50-year corporate bonds in nearly a year, according to data provider Dealogic. Rice University sold 50-year bonds in June of last year, and Entergy Arkansas Inc. and Entergy Louisiana LLC sold 50-year debt last May, Dealogic said.
Caterpillar sold $500 million of 50-year bonds and offered them to yield 1.375 percentage points more than comparable U.S. Treasurys. The company also sold 10-year and 30-year debt, to yield 0.80 and 0.95 percentage point over Treasurys. The 10-, 30- and 50-year bonds yielded 3.402%, 4.342% and 4.767%, respectively. The total size of the sale was $2 billion.
Corporate bonds with such long maturities typically come from companies with investment-grade credit ratings, or triple-B-minus or above. A high rating gives investors more confidence the company can repay the debt so far into the future, though borrowers pay higher rates to borrow for longer periods.
Caterpillar carries single-A ratings, making it investment grade and four notches above triple-B-minus.
The company is no stranger to long bonds—it issued a bond with a 100-year maturity in 1997.
The sale comes about a week after the Canadian government sold 50-year debt for the first time.
The U.S. Treasury has yet to issue 50-year debt, though analysts have discussed the possibility in the past.
Corporate bond rates are tied to yields on U.S. Treasurys. The 10-year note was yielding about 2.60% Monday.
The Caterpillar deal received about $8 billion in orders, said one investor following the sale. It initially planned to sell 10-year and 30-year bonds but added the 50-year later in the day. Barclays PLC, Bank of America Merrill Lynch and J.P. Morgan Chase & Co. oversaw the sale.
One person familiar with the sale said the 50-year portion was added after a “reverse inquiry”—when an investor approaches bankers and asks for bonds with specific terms.
Investors said the bonds appealed to insurance companies and pension funds, which have liabilities many years into the future and often buy long-dated debt to more closely mirror what they will owe.
Arne Espe, vice president of mutual fund portfolios at USAA Investments, which oversees $62 billion, said it wasn’t surprising that Caterpillar was issuing 50-year bonds, given that rates remain relatively low, making it cheaper for companies to borrow money.
“It’s not super common,” Mr. Espe said. “But there’ve been plenty of them in the past.”
Mr. Espe declined to say whether his firm participated in the Caterpillar sale.
—Min Zeng contributed to this article.Write to Mike Cherney at email@example.com and Vipal Monga at firstname.lastname@example.org Copyright 2013 Dow Jones & Company, Inc. All Rights Reserved This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit