Barrons Edition reports that mega-retailer Walmart borrowed $5 billion in the corporate bond market on Wednesday, with strong investor demand dialing back borrowing costs for the national chain.
Walmart WMT, -0.68%, a big-box retailer with AA credit ratings, was initially expected to raise about $4 billion, but increased its borrowing size and trimmed pricing after order books shaped up to around $20.5 billion, according to Informa Global Markets.
“If there were any questions about what the demand for higher qualify risk would be, they were answered with minimal concessions and books over four times covered,” said Tim Kurpis, a portfolio manager at AllianceBernstein, of investor orders for Walmart’s debt.
Corporate bond issuance in March nearly ground to a halt after the collapse of Silicon Valley Bank prompted fears of broader instability in the U.S. banking system, while also producing volatility and huge swings in the financial markets, Barrons Edition reported.
A few new deals emerged in April, but supply in the U.S. investment-grade market was still 15% below last year’s volumes at roughly $410 billion on the year as of last week, according to BofA Global.
Still, highly rated companies tapping the bond market in recent weeks have been met with “very robust demand,” Kurpis said.
Walmart plans to use proceeds from the debt raise for general corporate purposes. It has at least $4 billion of bonds maturing over roughly the next six months, according to a tally from CreditSights analysts.
Walmart’s debt deal comes as financial markets have again become more favorable for borrowers to navigate. The retailer’s big $1.5 billion class of 10-year bonds priced Wednesday at a spread of 70 basis points above the risk-free Treasury rate, or well below an initial range of about 95-100 basis points above the benchmark, according to Informa.
The 10-year Treasury rate TMUBMUSD10Y, 3.519% was near 3.419% on Wednesday. Bond prices and yield move in the opposite direction.
Yields on corporate bonds have been climbing in the past year as the Federal Reserve has jacked up interest rates to fight inflation. The yield on the ICE BofA U.S. Corporate Index was last spotted at about 5.06%, down from a recent peak of 6%, but well above the near 2% yield during the pandemic lows.
Higher borrowing costs, following a decade of ultralow rates, are expected to eventually pinch corporate profits.
In a cost-saving move, Walmart said to Barrons Edition earlier in April that roughly 65% of its stores will be serviced by automation by the end of the fiscal year 2026, while about 55% of the fulfillment-center volume will move through automated facilities.
Walmart also said earlier in April that it expects adjusted earnings per share of $5.90 to $6.05 for its full fiscal 2024, set to end in January.