Last week McDonald’s came to market with a $450 million primary offering of 10 year debt securities yielding 3.5%. A similar Treasury backed by the taxing authority and full faith and credit of the US government yields roughly 3.0%.

Why does McDonald’s get such favorable terms?

  1. Strong Demand – Savers averse to equity market risk can’t sit in 0% cash forever. Corporate bonds represent a nice “half a loaf” solution. Strong demand pushes down yields.
  2. Creditworthiness -With its strong balance sheet and earnings power Ronald McDonald simply doesn’t need the money. He’s a good risk. How many times did our exasperated parents tell us the best time to borrow money is when we don’t need it?

Inexpensive costs help explain why borrowing is surging. Corporations are using cheap money for investments, acquisitions, refinancings and stockpiling the “war chest.”

Here’s a look at the 11 largest bond offerings so far this year:

Date of Issue Issuer Type of Security Rating Offering Size
02/04/10 Kraft Foods 5.375% coupon – 2020 maturity BBB- $3,719,000,000
02/04/10 Kraft Foods 6.500% coupon – 2040 maturity BBB- $2,971,000,000
03/09/10 Novartis 1.900% coupon – 2013 maturity AA- $1,997,000,000
03/09/10 Novartis 2.900% coupon – 2015 maturity AA- $1,990,000,000
02/04/10 Kraft Foods 4.125% coupon – 2016 maturity BBB- $1,744,000,000
06/30/10 Wal-Mart 3.625% coupon – 2020 maturity AA $1,498,000,000
02/24/10 Comcast1 5.150% coupon – 2020 maturity BBB+ $1,398,000,000
03/03/10 Time Warner Cable 4.875% coupon – 2020 maturity BBB $1,395,000,000
05/26/10 Discovery Communications 5.050% coupon – 2020 maturity BBB- $1,295,000,000
03/30/10 Linn Energy1 8.625% coupon – 2020 maturity B $1,268,000,000
06/08/10 Microsoft1,2 0.000% coupon – 2013 maturity AAA $1,250,000,000

 
1 senior unsecured
2 convertible