BOYD ERMAN

Tuesday, May 12, 2009

CAPITAL MARKETS REPORTER

Ford Motor Co. F-N desperately needs money, and Microsoft Corp. MSFT-Q does not, but with capital markets more open than they have been in 18 months, both companies are taking advantage to raise billions.

Ford is selling 300 million shares, worth about $1.8-billion (U.S.) at yesterday's closing price, to help fund its employee health care promises.

Microsoft, blessed with a triple-A credit rating and an ample $25-billion cash hoard, is planning to raise at least $3.75-billion more by selling bonds for the first time ever. Why? Just because it can - Microsoft earmarked the proceeds for "general corporate purposes."

Bankers and investors are expecting a flood of such fundraising transactions after both bond and credit markets have soared in the past month, driving down the cost of raising capital.

"Companies should borrow money when everyone wants to give it to them," said Barry Allan, founder of Marret Asset Management Ltd., which oversees $2-billion (Canadian) of high-yield debt investments.

That's what investment bankers are telling corporate treasurers - given that over the past 18 months markets have opened up periodically before slamming shut when something spooked investors.

And treasurers are clearly taking that advice. Canada's companies have been busy, with a landmark series of deals last week.

Led by Teck Resources Ltd.'s sale of more than $4-billion (U.S.) of high-yield debt, Canadian companies placed almost $6.7-billion of bonds last week, eclipsing a weekly record set in 2008, according to figures obtained from Thomson Reuters.

More companies are coming to market. Market sources said AltaLink LP, an Alberta power line owner, was looking for investors yesterday to buy debt.

Friday also saw the announcement of the first major Canadian initial public offering since late 2007, a planned sale for a subsidiary of Alberta power producer Epcor Utilities Inc. that could raise as much as $500-million (Canadian).

For Canadian companies looking at selling debt, U.S. markets are tantalizing because of their size and the fact investors there are clamouring for more bonds as they try to get in on the run in credit markets.

"There's an excellent opportunity for Canadian borrowers to access the U.S. debt capital markets right now," said Susan Rimmer, head of Canadian debt capital markets at Merrill Lynch.

Demand is strong on most deals, with orders for more bonds than are available, and the bonds are usually rising in value after they are first sold.

"I expect we'll see more Canadian issuers making the trip to the U.S. markets while the window is open," Ms. Rimmer said.

This time around, the big rally in stocks and bonds gives a sense that the window to raise funds may remain open longer than in previous instances since the credit crunch, when demand has dried up after a few weeks.

Nonetheless, there's likely to be a race to ensure companies that need cash lock in funds at the good rates offered after the rally in bonds and stocks.

There's also likely to be a rush of fundraising to try to get in the queue before investors take off on summer holidays, which usually makes it tough to get deals done.

That creates a risk that if companies get too greedy, all the new supply may swamp demand and stall the run in markets that's enabled sales in the first place, Mr. Allan said. "There's about 15 deals coming this week, which is usually what kills the rally."