Companies Increase Debt Holdings While Rates Remain Low

“U.S. companies are racing to fill up on borrowed money, amid worries that interest rates are set to rise once the Federal Reserve ends its support for financial markets next month.If debt is increasing on the ledger; can we negate cash on hand ?

Johnson & Johnson staged its biggest bond deal on record Tuesday. Texas Instruments Inc. raised debt for the first time in more than a decade Monday, and Google Inc. sold its first bond ever. Smaller companies like Great Plains Energy Inc. are also loading up on debt at some of the lowest interest rates ever.

All told, investment-grade companies sold $19 billion of bonds in the U.S. in the past two days, according to data provider Dealogic, setting the week up to be among the busiest so far this year. Bond sales in May have reached $56.7 billion—with two weeks left to go in the month—almost as much as the $59.6 billion sold in all of April.

Companies have already loaded up on debt over the past two years amid continued low interest rates. But in recent weeks, rates have moved down again, reaching their lowest level of the year. Making borrowing even more attractive right now: Many corporate treasurers expect interest rates may rise quickly once the Fed ends its $600 billion Treasury-bond buying program in June.

“Rates are so low it’s hard to see them going much lower, but it’s easy to imagine them going higher,” said Kevin March, chief financial officer of Texas Instruments, which sold $3.5 billion of debt in its first offering since 1999. The money will help pay for its purchase of National Semiconductor Corp. Texas Instruments paid less than 1% for some two-year debt. At current rates, “You just shake your head and say, ‘This is pretty amazing,'” he said.”

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