There’s still plenty of reason for companies to sell long-term debt, said Marsh & McLennan Cos. Chief Financial Officer Mark McGivney, as policymakers signal US interest rates could remain higher for longer.
(Bloomberg) — There’s still plenty of reason for companies to sell long-term debt, said Marsh & McLennan Cos. Chief Financial Officer Mark McGivney, as policymakers signal US interest rates could remain higher for longer.
Earlier this month, the New York-based professional services firm sold $1 billion of senior notes due in 30 years at a coupon rate of 5.7% and another $600 million of 10-year debt at 5.4%.
It joined other blue-chip companies — including T-Mobile US Inc., Gilead Sciences Inc. and the financing arm of BHP Billiton Ltd. — that have lured strong demand on Wall Street with long-dated offerings.
McGivney spoke in a Sept. 18 interview with Bloomberg News. Below are highlights of the conversation, which have been condensed and edited for clarity.
Your firm has about $1.6 billion of debt coming due next year. What made you come to the market now?
We did $1 billion of a 30-year tranche and $600 million of a 10-year tranche of new senior notes. That basically is prefunding those maturities. And, the current state of the yield curve [means] there really isn’t that much of negative carry.
Some companies refrain from issuing long-duration debt as they expect rates to come down. What is your strategy?
Look, interest rates are high, but we don’t get paid to time the market. We get paid to fund the company according to the capital structure that we lay out. We just felt the environment was good after Labor Day. Spreads had come back in a little bit. So relative to where we would’ve issued a month earlier, it was a little bit better.
Long-term debt is highly sought after by investors right now. Is that why you chose to sell a 30-year bond?
We’ve had a lot of debt because our company has grown so much and we’ve maintained leverage. But I actually have put a lot of 30-year paper out there — and I’m glad I did. I think the last 30-year we did, we got inside 3% for a 30-year bond. So in that 10-year period, it was a no-brainer.
How did the latest bond deal go?
We found that the 30-year was where there was most efficiency. If you went back and looked at the cascade of news over the course of that day, we actually went into the market with $800 million of [30-year notes] and $800 million of [10-year notes]. You build your order book and then you look. How do you compress spreads? We actually shifted $200 million into the 30-year bucket because that’s where the most efficiency was. By far, there was more demand in that tranche.
What does that demand tell you?
It seems to suggest that people think the 30-year buy isn’t so bad right now. That’s where we found a little bit of the sweet spot. Actually, I think if we had really pressed on sticking to the $800 million at the 10-year, we probably — all in — would’ve ended up paying more in terms of coupons across the two than we did. It didn’t cost us all that much more because we found the efficiency in the 30-year and we were able to compress the spreads a lot more there.
What’s your view on locking in current rates for 30 years?
It’s a portfolio, and we’re consistently in the market. You think about that maturity ladder and you want to balance out long and balance out short. You also don’t want to put the stress on yourself to have to roll too much debt or repay in a given year. So you’re also looking at where you have windows of opportunity in your return ladder and where you don’t have anything coming due. And you might look to slot something in.
US interest rates are at a 22-year high. How concerned are you about that?
My own view is that the last decade’s interest-rate environment was probably more unusual, over the course of recorded history, than the current environment.
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