When CBS Corporation sold $700 million of senior notes in 2007 they were supposed to run for 49 years, but they were callable after five years. Interest rates have fallen so much since then that the notes are being called next month – just as soon as that is possible – and $700 million of new notes are being sold at a much lower interest rate.
The old notes carry a coupon of 6.75% – which probably seemed pretty reasonable before the Great Recession sent rates plunging. The new notes carry a coupon of 3.75% and priced at 99.095% of par for an effective yield of 3.483%. They will mature March 1, 2022.
All three major bond-rating agencies gave the new issue an investment-grade rating: Moody’s Baa2; S&P BBB; and Fitch BBB.
The joint book-running managers for the offering are Merrill Lynch, Pierce, Fenner & Smith Incorporated, Deutsche Bank Securities Inc., RBS Securities Inc., UBS Securities LLC, Credit Suisse Securities (USA) LLC, and Wells Fargo Securities, LLC.
The sale of the 3.75% senior notes due 2022 will close Friday, March 2, 2012. The old 6.75% senior notes due 2056 are being called as of March 28, 2012, with holders to be paid 100% of face value and all interest due through March 27.
RBR-TVBR observation: Who could have imagined back in 2007 that interest rates would be so much lower five years out? CBS is cutting the maturity timeline by more than three decades, but it saves $210 million in interest payments over the next decade.