New York, NY, March 22, 2006--Home Depot's $4 billion bond sale is likely to meet strong demand, but some investors said on Monday the retailer may need to make some price concessions due to the size of the deal.
The retailer is expected to sell five-year and ten-year notes, with the deal likely pricing on Tuesday, a market source said. The $4 billion sale will be the eighth-largest U.S. corporate bond issue since the beginning of 2005, according to Dealogic.
"It's a very high quality credit and the pricing will probably reflect that ... nothing that high quality is cheap these days," said Greg Habeeb, lead manager of taxable bond funds at Calvert Asset Management. However, the deal is also very large, he said.
The five-year notes are expected to price in the low 50 basis point range over Treasuries, while the 10-year notes are expected to price in the low 70 basis point range, according to sources.
"The pricing shows a little bit of a concession and the size is likely responsible for that," said Sid Bakst, senior portfolio manager at Weiss, Peck & Greer Investments. But it is also in line with Home Depot's outstanding debt and comparable "AA"-rated credits, he added.
The home improvement store is selling the debt in order to finance its acquisition of Hughes Supply Inc., a distributor of construction, repair and maintenance products. Home Depot said in January it would pay $46.60 a share for Hughes and assume $285 million of the company's debt.
Joint lead managers on the sale are JP Morgan, Merrill Lynch and Morgan Stanley.
