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Big Buyback Prescription and More On Bonds



May 20, 2013 – Comments (0) | RELATED TICKERS: MRK , PBR

Two borrowers, Petrobras (PBR) and Merck (MRK) accounted for over 1/3 of last weeks' US$ corporate bond issues.

If I invested in individual bonds, I'd be watching for the PBR 10-year to get listed.  Investment grade (barely) note with a 4.35% coupon.  That's a higher rate than several recent junk issues.

MRK shareholders might want to take a look and see if they like the idea of borrowing $6.5 billion for share buy backs.  The move improves cash flow by quite a bit since the debt service cost is less than what Merck would pay in dividends on the repurchased shares.  I normally don't like this kind of move, but with rock bottom rates, it can make sense as long as the company doesn't push it to the point where its credit rating gets dinged or it would be challenging to repay the money.  I think MRK's borrow/buyback plan is fine, but $6.5 billion is still a lot of debt to add to the balance sheet.

Other than that, just a few refinancing deals profiled, including one that increases debt service cost - haven't seen much of that lately.

Questions or comments welcome here or at the article.

Fool on!  Russ

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