The shareholders of Amgen, Inc. (NASDAQ:AMGN) and Oracle Corporation (NYSE:ORCL) are gaining from the cheap borrowing costs in the bond market. Oracle sold ‘Notes’ worth $10 billion on Tuesday. It even covered the first bond of the company that will mature in forty years. Amgen also sold $1.25 billion in securities that will mature in 30 years. Both the borrowers opted for debt to return funds to their equity investors.
Like Oracle and Amgen, many other highest rated firms have been working on their balance sheets. The companies are showing readiness to borrow debt to return capital to satisfy stock investors forcing them to lift stock prices. The change in environment is further supported by the anticipation of hike in interest rates. The Fed intends to raise interest rates sometime in the year. The forecast that it will not be done before September are prompting borrowers to accept low yields on corporate bonds. There are many big companies that want to tap debt markets to support share buybacks.
The companies encouraged by improving economic environment are looking for more shareholder-friendly measures using debt. The conditions are considered as ideal for issuer to enter in market. The demand is high and costs are low, and the timing is considered good with the Federal Reserve deferring rate hikes.
Investors are keen to stick with the companies that have tightened spending and hoarded cash. In March, Oracle boosted its dividend payout by 25% to 15 cents per share, up from the payout of 12 cents a share. It was for the first time since 2013, Oracle opted for a dividend boost. The company last issued bonds in June 2014 for $10 billion. It sold the new debt in 6 parts. The supply is consistent with demand and so it is not at the level where the market can be termed overwhelmed.