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%.
I like that strategy, management locking down the cost of debt for the long term while they can. $1.25B vs a $24B market cap, so a decent sized deal as well.
I need to start paying more attention to the bond side.