Home |  Products |  Bios |  News |  Contact Us |  FAQ
  Independent Research on Corporate Bonds Since 1994 Preferences|Login

   September 7, 2010 @ 5:27 PM EDT
TODAY'S COMMENTS
4:31pm NiSource NiSource is issuing up to $400 million of equity in conjunction with a forward sale agreement with...
New Financing by Philip C. Adams, CFA
NiSource is issuing up to $400 million of equity in conjunction with a forward sale agreement with Credit Suisse. Proceeds will be used for general corporate purposes, including the financing of capex. We're not clear on all of the terms, but it would appear that NI will have the option to deliver additional shares in settlement of its future obligations under the agreement. Credit positive.
4:19pm France Telecom The new issue market was supposed to be hot and heavy in September and today did not...
New Issue by Dave Novosel, CFA
The new issue market was supposed to be hot and heavy in September and today did not disappoint. France Telecom issued $750 million of five-year notes at a spread of +82. The company also issued EUR500 million of 12-year bonds at a spread of +75 to the benchmark swap rate. According to a Bloomberg report, France Telecom will use the proceeds to redeem some of the 7.75% notes due in 2011 (dollar denominated). Revenue declines and weaker margins are minor concerns, but the key to our cautious view of the credit is the tight spreads. These spreads are tighter than the spreads of other telecom companies that we feel are better positioned.
4:03pm Burlington Northern Santa Fe Corp. Burlington Northern launched a two-part note issue today. It...
New Issue by B. Craig Hutson, CFA
Burlington Northern launched a two-part note issue today. It reportedly received $4 billion of interest for $750 million of total issuance of 10-year and 30.5-year notes. The bonds were priced at T+100 and T+140, respectively. The use of proceeds is entirely unclear. BNSF had $1.5 billion of cash at June 30 and is a strong free cash flow generator that will no longer be engaged in share repurchases now that it is under the Berkshire Hathaway umbrella. Its next debt maturity is $300 million in December 2010. As recently as May the company issued $750 million of 30-year bonds at even tighter spreads. We can only surmise that Mr. Buffett finds the financing environment very favorable and BNSF is a very recognizable name that he can capitalize on. BNSF certainly does not need the money. We prefer to own other Class I rails that we have opined on in other reports as the level of disclosure at BNSF is weak at best. While it files 10-Q's and 10-K's, the MD&A section is devoid of information and the company no longer particpates in industry conferences and does not provide detailed operating statistics like its peers. We would not purchase the new issues.
4:01pm Dell Inc. Dell just issued $1.5 billion of debt in three tranches. The company sold $500 million of three-year...
New Issue by Dave Novosel, CFA
Dell just issued $1.5 billion of debt in three tranches. The company sold $500 million of three-year notes at a spread of +70, $700 million of five-year notes at a spread of +90, and $300 million of 30-yer bonds at a spread of +175. Why would Dell raise this much cash? Well, first of all, because it can. Conditions are quite favorable in terms of interest rates and spreads, and investors appear to have the appetite for corporate issues. Secondly, we think Dell is building a comfortable war chest to make acquisitions. Its present structure has not been sufficient to match the performance of other large peers in the tech industry. So Dell is prepared to spend money to obtain a portfolio that can produce better results. The firm has a new acquisitions chief to lead the charge. As we have emphasized in our last few reports, leverage is not a problem at Dell. However, margins certainly are, and it appears management is ready to undertake transactions to secure more growth and better profitability. Financial risk is minimal at this point, but integration risk is rising.
3:50pm Vodafone In our report last week we discussed the possibility of Vodafone selling some of its minority stakes...
Asset Sale by Dave Novosel, CFA
In our report last week we discussed the possibility of Vodafone selling some of its minority stakes. Sure enough, according to a Bloomberg post, Vodafone is selling its 3.2% stake in China Mobile for $6.6 billion. Vodafone is supposedly using three investment banks to manage the offer, which is coming at a discount to market prices on the Hong Kong exchange. The logic behind the sale is that Vodafone wants to focus on its core operations. We think that this sale may be the first of many.
12:42pm Home Depot After the close of its fiscal second quarter, Home Depot paid off a $1 billion bond at maturity,...
New Issue by Carol Levenson, CFA
After the close of its fiscal second quarter, Home Depot paid off a $1 billion bond at maturity, using some of its $2.4 billion in cash. It said in its 10-Q report that it intended to replenish the cash used for this maturity by issuing bonds in the third quarter. This morning the company filed a "red herring" to issue ten-year and thirty-year bonds (probably at least $1 billion). Recent results have benefited greatly from easy comparisons, while share buybacks have resumed but at a relatively restrained pace. The stars are aligned for a successful new issue, a relatively rare one from a retailer perceived as recovering, even though a sustained uptick in home improvement spending, especially for big ticket projects, is uncertain. Extending its maturities at what is likely to be a low cost is a prudent move and demonstrates financial flexibility, although it reinforces our belief that debt reduction is unlikely, despite good free cash flow. According to Bloomberg, the new ten-year could come at a spread of T+135, which we don't find particularly generous.
11:07am Air Products Yesterday Air Products raised its hostile bid for Airgas once more. The increased bid of...
Takeover Battle by Carol Levenson, CFA
Yesterday Air Products raised its hostile bid for Airgas once more. The increased bid of $65.50/share is only 3% above its previous bid, but represents a whopping 51% premium to the "unaffected" Airgas stock price before APD's interest was made public. APD has also threatened to walk away if its board slate and by-law proposal are not approved by Airgas shareholders at the September 15 annual meeting. Airgas stock, which has continually traded above the APD bid, is down this morning, although still above the latest bid. In the seven months since APD's "bear hug" letter was disclosed, no other bidders have emerged publicly. The higher bid represents less than $200 million in additional cash that APD will need to borrow or otherwise fund, which is not material to the credit quality outcome. Should ARG agree to enter into negotiated talks before the shareholder vote (which we think is more likely than not), APD will likely increase its offer further, although how much further we couldn't say. Please see our upcoming full report.
10:16am Enterprise Products Partners Enterprise Product Partners has announced it will merge with Enterprise GP...
Merger by Philip C. Adams, CFA
Enterprise Product Partners has announced it will merge with Enterprise GP Holdings in a unit-for-unit exchange in which EPE unitholders will receive 1.50 EPD units for each EPE unit. The transaction is intended to lower EPD's cost of capital by reducing its General Partner's distribution rights, enhancing EPD's cash accretion from investments in organic growth projects and/or acquisitions. The transaction is expected to close before year end, and is subject to SEC approval and the vote of a majority of EPE unitholders (already assured.) About the only "negative" we see is that EPE has about $1 billion of debt (bank loans, rated "4B") that will be refinanced by EPD. Management stated the transaction should be ratings neutral. More in an upcoming report.
TODAY'S REPORTS
Investment Grade
Top Ten  We don't necessarily subscribe to the "double-dip" recession talk, but these credits could still perform well in that environment.
Top Ten by Gimme Credit
NV Energy, Inc., Nevada Power Company, Sierra Pacific Power Company  (with Analyst's Data Sheet) As we noted in our Intraday Comment last month, NV Energy's second quarter...
Watching The Chips by Philip C. Adams, CFA
High Yield
Bombardier  (with Analyst's Data Sheet) Bombardier's results for the second quarter ended July 31, released last week, were disappointing. While the Transportation segment had margin expansion and a...
Delayed Recovery by Evan Mann, CFA
Cooper-Standard  (with Analyst's Data Sheet) When it announced its second quarter results, Cooper Standard touted the fact that it had a double digit EBITDA margin for the fourth quarter in a row...
Sleeping With One Eye Open by Shelly Lombard
FRIDAY'S REPORTS (9/3/2010)
Investment Grade
H.J. Heinz  (with Analyst's Data Sheet) H.J. Heinz got off to a good start for its 2011 fiscal year. Earlier this week it reported solid sales and profit gains for its first quarter.
Early Hibernation? by B. Craig Hutson, CFA
High Yield
Hovnanian Enterprises  (with Analyst's Data Sheet) Hovnanian discussed fiscal third quarter results as of July 31 yesterday, but the newsmaker of the day was the industry report that pending sales...
Past The Peak by Vicki Bryan
Owens-Illinois  (with Analyst's Data Sheet) Owens-Illinois, the world's largest maker of glass bottles, just announced (and closed) the all cash purchase of Brazilian glassmaker CIV, increasing its...
Ready To Tango by Kim Noland
For Clients Only: New Investment Grade Top Ten is here!

Pinnacle West 8/30 
GM 8/27 
Husky Energy 8/27 
KeyCorp 8/20 
Potash 8/17 
An Independent Viewpoint
Rigorous Analysis
Coverage of Key Securities
Every report is one page, and concludes with an actionable investment recommendation.
Sep 1, 2010 | New York Times
SL on "Old G.M. Being Sold for Parts" Q- A recent report by the fixed-income research firm Gimme Credit estimates that bondholders will most likely end up with about 20 percent of the new G.M.
Aug 31, 2010 | Arizona Republic
PA on "Rate relief improving outlook for APS parent" Q-"I have to believe the long-term growth prospects are better there than in Cleveland or Detroit. The demographics are favorable."
Aug 31, 2010 | Hollywood Reporter
DN on "Time Warner Cable, Disney near carriage agreement" Q- DN in a report last week put it more aggressively than most, saying a deal will "in all likelihood be bad for TWC, although how bad is not entirely clear."
Aug 27, 2010 | Marketwatch
DN on "H-P, Dell both raise offers for 3Par" Quote- "Both Dell and H-P can easily afford to go much higher in their battle for 3Par, without "meaningfully jeopardizing" their credit quality.
Aug 27, 2010 | USA Today
CL on "Delivery of Boeing 787 Dreamliner Delayed Again" Quote-"Boeing's patient customers continue to wait, and hopefully the company will be able to negotiate its way out of paying material cash compensation for the delays."
Copyright © 2010. Gimme Credit LLC. All Rights Reserved.
For Public Relations and Press Contact
Susan Assadi sassadi@gimmecredit.com or 800.922.8792