BAE Systems Plc (BA, Financial) and Campbell Soup Co. (CPB, Financial) are tapping into the investment-grade bond market to finance their respective acquisitions, leveraging the current environment of tight spreads. This move is part of a broader trend where companies are increasingly issuing bonds for merger and acquisition (M&A) purposes, benefiting from favorable financing conditions.
BAE Systems is in the process of a significant bond issuance, totaling $4.8 billion across five parts, aimed at funding its acquisition of Ball Aerospace for $5.6 billion. Notably, the 30-year note segment of this issuance is anticipated to price at a spread of 118 basis points over Treasuries, a tightening from initial discussions of around 150 basis points. This adjustment reflects strong market interest and confidence in BAE Systems' financial strategy.
Similarly, Campbell Soup is issuing bonds to raise funds for repaying a $2 billion delayed draw term loan, which was instrumental in financing the acquisition of Sovos Brands Inc. These funds will also cover commercial paper and support general corporate purposes. Campbell Soup's move underscores the strategic use of bond sales to manage acquisition-related expenses efficiently.
The backdrop to these bond sales is a broader surge in M&A financing through the bond market, following a year marked by challenges in buyout funding. Companies like Bristol Myers Squibb, Cisco Systems Inc. (CSCO, Financial), and AbbVie Inc. (ABBV, Financial) have also successfully attracted significant interest for their M&A financing bonds, benefiting from the current low-risk premiums. The Bloomberg US Investment Grade Corporate Bond Index indicates risk premiums at 89 basis points, matching a two-year low, which encourages more companies to consider bond issuance for their financing needs.
Leading banks including BNP Paribas SA, Bank of America Corp. (BAC, Financial), Citigroup Inc. (C, Financial), JPMorgan Chase & Co. (JPM, Financial), and Morgan Stanley (MS, Financial) are playing key roles as lead managers in these bond sales, highlighting the involvement of major financial institutions in facilitating corporate financing strategies.
As the Federal Reserve's interest rate decision looms, the market sees a flurry of activity with nine borrowers entering the US high-grade market, indicating a strategic timing for these bond issuances to capitalize on current market conditions.
