Cisco (NASDAQ:CSCO) is shopping a 7-part senior bond deal today consisting of 18-month floating, 3-year fixed and floating, 5-year fixed and floating, and 7-year and 10-year fixed notes. The deal is being done to roll $3.75 billion in existing debt that is maturing next month, and in November later this year. Additionally, the new debt will be used to fund its existing $15 billion buyback plan (announced Nov. 11, 2013) and fund cash dividends (Cisco just increased its quarterly dividend to $0.19 from $0.17 two weeks ago, or a 3.44% annual yield). Hey, at least the company is being honest.
Initial price targets are actually a little wider than I would've thought. Last week, Google (NASDAQ:GOOG) -- which is also AA rated -- sold 10-year notes at 62.5bps over Treasuries. Cisco is currently going to have to pay +105bps. I'll be interested to see where the floaters price at to get a sense of how much interest rate/duration risk "fear" there is. More importantly, when we stop seeing issuance for financial engineering purposes like this -- if companies have access to capital markets, they may as well make use of it, no harm no foul there -- we'll know that there is going to be growth acceleration. Companies need to be spending money for capital equipment and business investment.
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