Wendy's International Inc and Procter & Gamble Co are finding that brand recognition can mean lower interest costs, as investors stick to names they know.
"It's like the concept of comfort food -- it's comfort names," said Bill Hornbarger, a fixed-income strategist at A.G. Edwards & Sons Inc. "It's not necessarily the rating or the credit quality. It's people saying, `I know who they are, I understand their products and I'm comfortable with it.'"
Investors, burned by government investigations into accounting and energy trading, are willing to pay up for bonds perceived as safe from companies with brand names. Investors have lost billions on debt issued by such companies as conglomerate Tyco International Ltd, energy trader Dynegy Inc and long-distance carrier WorldCom Inc.
Wendy's, the Dublin, Ohio-based hamburger chain founded by the late Dave Thomas, on Monday sold US$225 million of 12-year notes.
Investors placed orders for six times that amount, and Tuesday drove down the yield premium on the debt by 10 basis points to 110 basis points over US Treasuries, traders said. A basis point is 0.01 percentage point.
Procter & Gamble, the maker of Tide detergent and Pringles potato chips, sold US$1 billion of debt last week, up from an originally planned US$750 million, after finding strong demand.
Yield on the debt has narrowed to 47 basis points more than Treasuries, from 50 basis points last week.
"Investors are migrating toward sectors in the economy that are less complex and easier to understand," Wendy's Treasurer John Brownley said.
The appetite for debt attached to such well-known companies also has lowered borrowing costs for the issuers.
Kroger Co, the biggest US grocery chain, saved US$2.2 million a year in interest when it sold 10-year notes last week at 120 basis points more than Treasuries, down from 143 basis points in a similar offering two months ago. The spread on Kroger's new debt has since widened to 124 basis points.
Companies typically compensate investors with steeper yield premiums to hold debt with a longer maturity. Wendy's, though, paid a smaller premium on its new 12-year notes than it did on a batch of 10-year notes sold in November.
The company offered 120 basis points above Treasury yields, down from 210 basis points on its previous sale and equivalent to the premium on the average seven-year industrial bond with a similar credit rating.
"It's incredibly attractive pricing for a company that's rated `Baa1/BBB+,'" said Jim Esposito, a syndicate manager at Goldman Sachs Group Inc, which underwrote the Wendy's offering.
"Wendy's is viewed as a safe haven and has a strong management team. Combine that with terrific brand recognition, and it helped provide for a significantly oversubscribed" sale.
Banks also have found demand for their debt. Wells Fargo & Co, Wachovia Corp and KeyCorp are among the banks that have sold five-year notes since the start of the month.
"Banks are one of the few industry groups that investors feel provide a stable value," said Jonathan Shulman, senior vice president of funds management at Cleveland-based KeyCorp.
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