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Mutual Funds
Fidelity to get $750M loan
June 16, 1999: 6:00 p.m. ET

Fund giant goes to public debt markets for the first time for capital
By Staff Writer Martine Costello
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NEW YORK (CNNfn) - Fidelity Investments for the first time is looking to the public debt markets for a $750 million bond offering to finance major capital expenses like new technology, according to the Boston fund giant and Wall Street insiders.
     Fidelity is issuing high-quality, long-term bonds with a life of 20 and 30 years to institutional investors under a rule of the Securities and Exchange Commission, according to people familiar with the debt offering.
     Lead underwriter Morgan Stanley Dean Witter is pricing the bonds this week, and it is likely money would change hands within the next several weeks.
     "We'll use the money for general corporate purposes," said Tom Eidson, director of communications for Fidelity.
     Standard & Poor's rated Fidelity's debt offering a AA, the highest rating given to an asset manager. Moody's issued an Aa3, also a high rating.
     Michael DeStefano, an analyst at Standard & Poor's said he's not surprised Fidelity would look for longer-term bonds in order to lock in a rate.
     "If you think rates are going up, and this is a reasonably low rate environment, it wouldn't be imprudent to lock in financing," DeStefano said.
     The news on Wednesday took Wall Street by surprise and raised debate about whether the bond offering is to "test the waters" for an initial public offering down the road.
     The company is headed by chairman Edward Johnson 3rd, a Boston billionaire. Johnson's father founded the company in 1946.
     "It could be a prelude to a public offering," said Alex Paris Jr., an analyst at Barrington Research in Chicago. "It (an IPO) could be part of making the transition to the next generation."
     Burton Greenwald, a mutual-fund analyst at B.J. Greenwald in Philadelphia, agreed.
     "They've never gone to the public markets to raise money before, and in that sense, I could speculate they're testing the waters….although they clearly don't have any plans for that in the immediate offing," Greenwald said.
     But Mark Constant, an analyst with Merrill Lynch, argued the bond offering may suggest Fidelity may not be heading toward an IPO, since one reason for a public offering is to raise money.
     "This doesn't mean they would go public, but this is an alternative to going public," Constant said.
     Eidson dismissed talk of an IPO.
     "We have no plans to go public," Eidson said. "We enjoy our privately-held status. We're not testing the market to its reaction."
     Eidson said he couldn't comment further because of SEC regulations. Morgan Stanley Dean Witter, also declined comment.
     Greenwald said he thinks Fidelity will use the money for technology and global infrastructure upgrades. In the international arena, upgrades are important for distribution, particularly because Fidelity has been increasing its assets in those markets, he said.
     Constant said Fidelity is in some of the more "capital-intensive" areas of the brokerage business.
     "It wouldn't surprise me at all," Constant said of the bond offering. "It's not unusual."
     Under the SEC rule, Fidelity can sell securities such as bonds to qualified institutional buyers who have at least $100 million in assets under management. Fidelity won't have to register the sale with the SEC or meet stringent reporting requirements. Back to top

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