Walgreen Borrows $4 Billion on the Cheap

Walgreen Co. (NYSE: WAG) is out with a pricing of one huge corporate bond offering. The sale is for $4 billion in total. As you will see below, the retail pharmacy giant is borrowing money for what may look and feel like the money is free in several tranches.

• The first offering is a series of floating rate notes due 2014 for $550 million due on March 13, 2014, priced at three-month U.S. dollar LIBOR plus 50 basis points.
• The second offering is a series of 1.000% notes due March 13, 2015, for some $750 million with a yield of 1.05% or at 80 basis points above the Treasury equivalent.
• A third tranche is the  1.800% notes due September 15, 2017, for $1 billion with a yield to maturity of 1.844% at a spread of 120 basis points over Treasuries.
• Another traunch is the 3.100% senior notes due September 15, 2022, for some $1.2 billion with a yield to maturity of 3.113% at 145 basis points over Treasuries.
• The last tranche is a bond via a 4.400% senior notes offering due September 15, 2042, for $500 million at a yield to maturity of 4.449% at a spread of 165 basis points over Treasuries.

In a low-yield environment and with spreads at these ratings, companies like Walgreen can issue debt that gets snapped up by investor demand. The issues are all investment grade as well: Baa1 by Moody’s and BBB by S&P.

There is a question to consider here. At what point are corporate boards that can borrow money this cheaply obligated to go issue debt on the cheap in case any leveraging opportunities arise in the near future?

JON C. OGG