Cenovus Energy (TSX: CVE) raised $1.25 billion in debt financing today. Here were the relevant terms:
TRANCHE 1 AMT $500 MLN COUPON 3 PCT MATURITY 8/15/2022 TYPE NTS ISS PRICE 99.129 FIRST PAY 2/15/2013 MOODY'S Baa2 YIELD 3.102 PCT SETTLEMENT 8/17/2012 S&P BBB-PLUS SPREAD 137.5 BPS PAY FREQ SEMI-ANNUAL FITCH N/A MORE THAN TREAS MAKE-WHOLE CALL 20 BPS TRANCHE 2 AMT $750 MLN COUPON 4.45 PCT MATURITY 9/15/2042 TYPE NTS ISS PRICE 99.782 FIRST PAY 3/15/2013 MOODY'S Baa2 YIELD 4.463 PCT SETTLEMENT 8/17/2012 S&P BBB-PLUS SPREAD 165 BPS PAY FREQ SEMI-ANNUAL FITCH N/A MORE THAN TREAS MAKE-WHOLE CALL 25 BPS
So they can raise 10-year money at 3.1% and 30-year money at 4.46%. After taxes (assume 26%) this is about 2.3% and 3.3%, respectively. At these rates, I’d be raising as much 30-year capital as I can and figure out what to do with it later – there has to be a way to deploy it at a better pre-tax return rate of 4.46%.