The refinancing rush is on.
With global interest rates sitting at record lows, many of Australia's biggest corporations are jumping in to lower their interest costs by raising finance through corporate bond issues to replace existing, more expensive debt.
This morning it was Transurban's (TCL) turn although in recent days, Origin Energy (ORG) and BHP Billiton (BHP) both have raised extensive amounts of long term debt finance at remarkably cheap rates.
With the global economy in the early stages of recovery, many believe that this is the bottom of the interest rate cycle despite the recent decision by the US Federal Reserve to defer the tapering of its $US85 billion a month stimulus program.
The size of the bond issues, and the competitive interest rates, indicates the extent of the appetite among global investors for relatively safe, high yielding securities (see Adam Carr's Stay with the yield play).
Transurban last night tapped European capital markets, raising 500 million Euros on seven year terms that will be swapped equally into Australian and US dollars at 5.8% and 3.5%, with the proceeds used to repay looming short term debt facilities and to extend longer dated maturities.
It is the first time the toll road operator has raised cash on European markets, but given the 2.5% coupon rate – before swap costs – the temptation was irresistible.
Origin yesterday raised 800 million Euros on eight year terms at 3.5% with the proceeds destined to partially refinance its $7.4 billion syndicated loan facility raised just recently to help fund its 37.5% share of the $24.7 billion Australian Pacific LNG project at Gladstone.
And last week, BHP issued a massive $5 billion in corporate bonds, half of which were on 30 year terms with a coupon rate of 5%. The remaining half were 10 year bonds with a coupon rate of 3.85%. Both rates were well below the average achieved by metal and mining companies.
At the other end of the scale, the beleaguered Boart Longyear (BLY) was forced to refinance its syndicated loan facilities by its own bankers. It ended up paying 10% on its recent bond issue.