Consumer foods giant Campbell Soup Co (NYSE: CPB) helped kick-off investment-grade corporate bond sales Monday, while the coronavirus pandemic has generally spurred stock-pilers to sweep its products off store shelves.

High-grade corporate debt sales have been surging recently amid the Federal Reserve’s recent actions to support the economy, with another hefty round of high-grade offerings – in the area of US$40bn – set to price in the week ahead. 

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Among the deals, Monday, Campbell Soup – owner of Prego, Pepperidge Farms and V8 brands – priced US$1bn worth of ‘BBB’-rated bonds in evenly-split, 10- and 30-year maturities, despite a somewhat downbeat mood about riskier assets, driven largely by a further plunge in oil prices.

The company said it intends to use US$300m from the net proceeds of the sale to repay outstanding borrowings under its revolving credit facility, with the remainder pegged to pay down part of its outstanding commercial paper, as well as for general corporate purposes.

As of late March, Campbell Soup said it had a little more than US$1.1bn of commercial paper (CP) borrowings and drew-down US$300m on its revolver to repay CP and for additional cash on hand.

The issuance attracted decent demand, with spreads on the 10-year and 30-year tranches having compressed by 25 basis points to 30bps over the course of pricing. The 10-year notes were sold at a spread of 175bps more than matched-maturity U.S. Treasuries, while the 30-year bonds priced at a cash spread of 190bps.

Yields on the 10-year U.S. Treasury note and 30-year bond were last bid at around 0.635% and 1.250%, respectively.

The offering, co-lead managed by Barclays, BofA Securities, Citigroup, and J.P. Morgan, was assigned low-tier, investment-grade credit ratings by Moody’s Investors Service (‘Baa2’) and S&P Global Ratings (‘BBB-’).

Grab It While It’s Hot

Meanwhile, Campbell Soup’s latest debt sale comes as COVID-19-induced containment measures have inspired many to stock up on essential items such as groceries with long shelf-lives.

The company said earlier in April that in the wake of the pandemic, both its meals & beverages and snacks divisions have recently seen a large boost in new orders. 

Campbell Soup claims that in its meals & beverages business, for example, the weekly case order for the week ending March 21 had surged 366% year-on-year, and more than the entire month of March 2019.

In the same week, the firm produced more than 2m pounds of Pepperidge Farm Goldfish and cookies at its snacks plant in Richmond, Utah.

S&P Global noted that prior to the coronavirus outbreak in the U.S., Campbell’s meals & beverage segment was “showing some signs of improvement and its snack business had continued to generate good performance.” The company is now “benefitting from the significant increase in at-home consumption because of widespread government shelter-in-place mandates.”

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While the Campbell Soup Co has not indicated the magnitude of the acceleration of its sales growth, S&P cited data from Nielsen and IRI, that it is incurring double-digit increases in organic sales in tracked channels.

The firm’s leverage was 3.8x in the trailing 12-months (TTM) ended January 26, with S&P expecting the level to drop to the mid-3.0x area in fiscal 2021 (ending July 31), slightly below its previous outlook of 3.7x. It added that its latest US$1bn bond transaction is likely leverage neutral.

Against this backdrop, some of Campbell Soup’s bonds in the secondary market gapped somewhat wider Monday, including its 4.8% debt due March 2048 (+10bps to 150bps) – a sign that some bond investors were likely making room for the new longer-dated issuance.

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Aggregate OAS spreads on investment-grade notes in the consumer staples sector widened by around 3bps on the day Monday to a little more than 170bps, according to Bloomberg.

Meanwhile, the Campbell Soup Co had seen its stock rise by around 2.7% intraday Monday to US$51.67, while the S&P 500 and consumer staples sector slumped by around 0.5% and a little more than 0.6%, respectively.

The IBKR Trader Workstation’s (TWS) Mosaic Market Scanner also shows that shares of Campbell Soup carry a 3.0% dividend yield – about on par with the broader consumer staples sector.

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Fed-Driven Dynamics

Overall, demand for U.S. dollar-denominated corporate bonds has been unrelenting recently, especially amid the Federal Reserve’s recent actions to buoy the market, and despite the sour tone struck in the energy sector as the cost of crude has plummeted.

For the week ending April 15, Refinitiv U.S. Lipper Fund Flows reported net inflows of more than US$5.8bn into high-grade corporate funds after around US$51bn was withdrawn in the prior three weeks, and recorded net inflows of close to US$7.7bn into high yield funds.

Month-to-date in April, a total of around US$173bn worth of new investment-grade bonds priced, with a whopping US$68.7bn of that tally having been sold in the past week, according to Ron Quigley, head of fixed income syndicate at Mischler Financial.

Year-to-date in 2020, sales of new high-grade corporate bonds have mushroomed.

As of April 7, 2020, total corporate bond issuance – investment-grade and junk bonds combined – tallied 32.3% higher year-on-year to almost US$515bn, according to data compiled by the Securities Industry and Financial Markets Association (SIFMA).

Over the same period, issuance of investment-grade corporate bonds has spiked 38.6% to nearly US$446.25bn, as rates have spired downwards.

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Meanwhile, market participants will likely be keeping a close eye on the energy sector, where aggregate high yield OAS spreads have blown out by around 40bps on the day Monday, and as widespread warnings of defaults have circulated amid the recent oil prices collapse.

The active WTI contract was last trading at ZERO (US$0.00) intraday Monday – a full 100% drop on the day – while the continuous June contract was off more than 15% to US$21.10, according to TWS.

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In the meantime, for more insights, use the global bond scanner in the IBKR Trader Workstation to locate corporate bonds that are available to trade in the secondary market, along with U.S. Treasuries, municipal bonds, non-us sovereign debt and more.

Market participants can also construct and customize their own sector-specific stock universe using the IBKR Trader Workstation’s Mosaic Market Scanner.