(The following story by Pierre Paulden, Mitchell Martin appeared on the Bloomberg BusinessWeek website on September 15, 2010.)
Rabobank Nederland NV, the world’s largest agricultural lender, sold $350 million of 100-year senior bonds in the first offering of such securities by a bank.
The sale of 5.8 percent debt was the first 100-year senior bond offering by a bank and the lowest yield for debt of that maturity, according to data compiled by Goldman Sachs Group Inc., which helped manage the sale. Rabobank earlier marketed $250 million of the debt, Michael Gower, head of long-term funding at the lender, said in a telephone interview before the bonds priced.
The Dutch bank sold the notes less than a month after railroad Norfolk Southern Corp. issued $250 million of 100-year bonds in the first sale of debt with that maturity since 2005, which was also managed by Goldman Sachs, according to data compiled by Bloomberg. Rabobank tapped investor demand for long- dated paper from pension funds and insurance companies, Gower said.
“Given where yields are, and on the back of the NSC deal that raised a few eyebrows, we thought this was an opportune time to look at something a bit longer,” Gower, who’s based in Utrecht, Netherlands, said. “It’s a real confirmation of the strength of the credit, and obviously, it’s borrowing 100-year money at historically low levels.”
Rabobank also sold 300 million pounds ($466 million) of bonds due 2060 on July 27, Bloomberg data show.
‘Specific Demand’
Goldman Sachs identified investor demand for 100-year debt after Norfolk Southern’s offering, said Jonathan Fine, head of U.S. investment-grade syndicate at Goldman Sachs in New York.
“We found specific demand in this part of the curve for a very small list of issuers who fit the criteria of those who invest in a 100-year tenor,” Fine said in a telephone interview.
Yields on investment-grade corporate bonds maturing in 15 years or more fell to 5.57 percent today, after dropping as low as 5.37 percent on Aug. 26, according to Bank of America Merrill Lynch, the lowest since the daily index tracking such bonds began in 1986. The yield on investment-grade debt due in 5 to 10 years is 4.17 percent, the data show.
“It’s a significant pick-up over your standard five- or 10-year maturity,” Gower said of the bond maturing in 2110. Investors “want to put money to work in long maturities with credits and issuers they’re very comfortable with.”
Rabobank is rated AAA by Standard & Poor’s, the highest investment-grade ranking, and an equivalent Aaa by Moody’s Investors Service.
‘More Issuance’
The 5.8 percent coupon that Rabobank is paying compares with the average 5.81 yield on 30-year U.S. Treasuries during the past 20 years, Goldman Sachs data show.
The debt offering by Norfolk Southern, based in Norfolk, Virginia, was a reopening of a March 2005 transaction, Bloomberg data show. Its $250 million of 6 percent notes were sold last month to yield 229 basis points more than similar-maturity Treasuries, or 5.95 percent, Bloomberg data show.
“There’s some very specific demand from a niche investor base for a short list of potential 100-year issuers,” Fine said. “We’d say there probably will be some more issuance between now and the end of the year but we’re certainly not expecting it to be a weekly thing people discuss and think about.”