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Oil firms hit bond market
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April 16, 1999: 2:50 p.m. ET
Multi-billion dollar issues by Conoco, ARCO reflect a seller's market
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NEW YORK (CNNfn) - Two big new corporate bond issues in the energy sector this week reflect investors' renewed interest in the debt market, fixed income analysts said Friday.
Conoco issued a $4 billion, three-level debt offering Thursday. The deal is the largest ever by an energy company, according to Securities Data. Conoco (COC), which wants the cash injection to help cover its $4.8 billion spin-off from parent DuPont, originally sized the offering at $3 billion but increased it because of strong investor demand.
Friday, another energy company, Atlantic Richfield Co., (ARC) said it planned to float $1 billion in bonds. That offering would be broken into two sales of $500 million each.
"Right now there's a tremendous demand for relatively high-quality corporate bonds," said Robert Schiffman, an analyst with Donaldson, Lufkin & Jenrette. "People are willing to take a little more risk and take the premium over Treasuries right now."
Analysts said the resurgence of corporate debt securities, which companies shied away from offering during the global financial crisis last fall, began with AT&T 's (T) announcement of a record $8 billion sale last month. That deal easily surpassed the previous record, a $6.1 billion offering by MCI Worldcom (WCOM) last August.
"There were a lot of issuers waiting for the AT&T deal to set the tone," said Patrick Dimick, an analyst at Warburg Dillon Read. These corporations wanted to see if AT&T could sell its bonds, he said.
Because now is an attractive time to issue these bonds with interest rates relatively low, many other companies also are considering deals, Schiffman said.
Long-distance giant Sprint Corp. (FON), for example, is considering a bond deal worth up to $3 billion, he said. "With the markets being as good as they are now, they know the financing is there," he said. Sprint issued a $5 billion of bonds in November.
In the oil sector, higher oil prices combined with low interest rates created ideal conditions for floating bonds, Dimick said. The deals also reflect the consolidation rampant in the energy sector, with oil companies using bond issues to roll over debt.
"Consolidation is right on the forefront in the whole business and I think it's going to continue," said Rosario Ilacqa, an analyst at Rothschild Inc. "The bigger are going to get bigger and the small ones are all kind of floundering on the sidelines."
The Conoco offering included $1.35 billion in 5.9 percent five-year notes at a price of 99.856 to yield 5.934 percent, or 88 basis points over the yield of comparable U.S. notes. The second level consisted of $750 million in 6.35 percent 10-year notes, priced at par for a spread of 120 basis points. The third portion, a $1.9 billion, 30-year tranche, carried a 6.95 percent note priced at par for a spread of 134 basis points.
Conoco's stock was up 1-1/8 at 26-1/8 on the New York Stock Exchange Friday. ARCO stock was up 2-7/16 at 82-9/16.
There is some concern that the debt market could become oversaturated if more corporations issue bonds. But analysts said that for now, demand continues to outweigh supply.
"At some point that could change, but right now it seems to be somewhat of a seller's market," Schiffman said.
Dimick added that the talk of "supply, supply, supply" needs to be put into perspective. "We're merely getting back to the levels where we were last year," he said. "The corporate bond market is healthy again." 
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