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Buyers Flock to Walmart’s Bond Aisle


Senior Market Analyst at Interactive Brokers

Walmart (NYSE: WMT) was among a throng of investment-grade corporate bond issuers Thursday with a new debt sale, as still ultra-low U.S. interest rates have spurred a recent surge in offerings.

The Arkansas-based retail bellwether was set to sell US$1.5bn of ‘AA’-rated 10-year notes and 30-year bonds. The deal was upsized by US$500m at the time of launch, reflecting strong demand.

Cash spreads on the two tranches had also compressed by around 15 basis points from initial price talk on the transaction, further underscoring interest in the issuance, which was announced alongside other offerings Thursday, including from PayPal (NASDAQ: PYPL) and VW Group of America (OTCMKTS: VWAGY).

Walmart’s US$500m 10-year notes and US$1bn 30-year bonds launched at 60bps and 80bps more than matched-maturity U.S. government debt, respectively, which were last trading at around 1.77% and 2.21% intraday.

The company said it intends to use the net proceeds from the sale for general corporate purposes, which may include repayment, refinancing or replacement of maturing debt, among other uses.

The deal, which was being co-lead managed by Barclays, BofA Merrill Lynch and Citigroup, was slated to price Thursday afternoon.

Gimme Credit analyst Carol Levenson recently noted that Walmart continues to gain market share, and its investments have placed it “at the forefront of omnichannel selling, capitalizing upon its physical store network.”

Gimme Credit considers the firm “one of the strongest credits” in its universe and expects it to continue its “balanced” capital allocation policies.

Levenson continued that Walmart’s strong free cash flow in the first half of 2019, along with some asset sales, “were sufficient” to fund US$3.7bn in stock buybacks, “significantly higher than the prior year period.”

While she anticipates a slight increase in debt for the year, assuming repurchases continue at that rate, with EBITDA down “modestly,” she foresees lease-adjusted leverage remaining “virtually unchanged at a very healthy 2.2x.”

Walmart had previously come to market in mid-April with a US$4bn bond in three parts, with a weighted average coupon of just over 3%.

The firm’s 3.25% notes due July 2029 were last bid at roughly US$109.446, 1.93% higher on the day Thursday, after undergoing steep swings – following the recent path of Treasury yields.

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