When Fed Chairman Ben S. Bernanke started to pump cash directly into the financial system in December 2008 by purchasing bonds in a policy known as quantitative easing, unemployment was the highest in 26 years and companies rated below Baa3 at Moody’s and less than BBB- by Standard & Poor’s faced $1.2 trillion of debt maturing through 2015. That’s been cut to about $115.8 billion, according to Barclays Plc.
“The benefits of quantitative easing include the confidence that it gave to markets, which allowed credit markets to re-open,” said Eric Gross, a Barclays credit strategist in New York. “If a company can get to the primary market and pay off its obligations, it can live to fight another day. The problem back then was the primary market was completely closed.”
Companies sold just $21.9 billion of investment-grade and high-yield bonds in the month after Lehman collapsed on Sept. 15, 2008, less than half the size of Verizon’s sale last week.
Kroger’s $3.1 billion of bond sales in the past four years included $600 million of 10-year notes sold in July with a 3.85% coupon. That’s below the 6.4% for similar- maturity debt that the largest supermarket operator in the U.S. issued in August 2007, data compiled by Bloomberg show.
Schlotman said the interest savings gave him the confidence to ask Kroger’s directors to approve $10 billion in capital expenditures and boost employment by 35,000 jobs over the past five years. The company had 343,000 employees as of Feb. 2, data compiled by Bloomberg show.
Savings of about $700 billion represents the difference between what companies that have sold bonds since Sept. 17, 2009, are paying annually based on an average maturity of nine years for securities in the Bank of America Merrill Lynch U.S. Corporate & High Yield Index, versus what they might have paid before the crisis.
After rising as high as 11.1% on Oct. 28, 2008, it wasn’t until Sept. 17, 2009 that yields fell below the pre- Lehman average of 6.14%, the Bank of America Merrill Lynch index shows.
International Business Machines Corp., the largest computer-services provider, sold $1.25 billion of seven-year notes in May at a record low coupon of 1.625%. That compares with a 5.7% rate on 10-year debt issued in 2007 by the Armonk, New York-based company.
Verizon, the largest U.S. telephone carrier after No. 1 AT&T Inc., issued $49 billion of bonds in eight parts on Sept. 11 in the biggest sale on record to help fund its $130 billion purchase of the rest of Verizon Wireless from Vodafone Group Plc. On the $11 billion portion due in 10 years, the New York- based company is paying a coupon of 5.15%, less than the 5.5% on similar-maturity notes it sold in March 2007.
Verizon’s offering exceeded the previous record of $17 billion set on April 30 by Cupertino, California-based Apple. That sale, the iPhone-maker’s first since 1996, included $4 billion of 1%, five-year notes and $5.5 billion of 2.4%, 10-year securities.