It is both interesting and revealing to examine how corporate treasurers have carried out their financings through the first nine months of 1984 as compared with the similar period in 1983. The only real similarity would be in the issuance of straight corporate debt. The proceeds from bond sales in 1984 have been $45 billion, against $43 billion last year. However, approximately $13 billion of this year's number has come from the sale of Collateralized Mortgage Obligations (CMOs).
The most noticeable difference lies in equity issuance. Through the first three quarters of 1983, $31 billion of new equities were sold. So far this year, only $7 billion of equity issues have been marketed. The roaring stock market of 1983 facilitated this large supply of stock offerings, which helped companies to rebalance their capitalization ratios.
Another area that is different is the preference of U.S. corporations for using the international bond market this year to issue their debt. This market mainly has been used by high-grade U.S. corporate issuers who have more than doubled the amount of bonds sold in Europe in 1984 versus 1983. Last year, in the first nine months, $5.7 billion was issued overseas, while approximately $13 billion has been issued so far in 1984. In a word, it has been "cheaper" to finance in Europe, and the strong dollar has enhanced the demand for our corporate debt.
A very positive yield curve through most of 1984, with substantially lower interest rates existing in three-month and shorter maturities, has led to a hefty $21 billion increase in nonfinancial corporate borrowings through the commercial paper market. Treasurers are even shifting loans away from banks and are moving into the much lower interest rates available in the commercial paper market. In 1983, this growth was negligible.
Through all of this corporate financing there has been one thread of similarity, both in the international and in U.S. borrowing. That thread has been the overwhelming amount of short-term -- seven years or shorter -- borrowing. Because there is a great deal of uncertainty about the direction of interest rates, most borrowers are reluctant to incur long-term interest rate commitments above 12 percent. As a result, they finance with short-term maturities. The only problem is, should short-term interest rates rise for any length of time, these corporations would be hurt as they would be forced to refinance a lot of short-term debt at higher interest rates. What corporate treasurers really need to do is to redress their balance sheets and move a good portion of this short-term debt into longer maturities.
Eileen Austen, a municipal bond analyst for Drexel Burnham Lambert, offers the following suggestions for tax swapping: She would sell North Carolina Eastern Municipal Power Agency bonds and replace them with North Carolina Municipal Power Agency-Catawba project bonds. Austen thinks the Intermountain Power Agency, even though it is currently on Standard & Poor's "Creditwatch" because of the proposed Jarvis amendment, will work out. She feels that Intermountain and the Southern California Public Power Agency bonds are both selling cheap in the market, and would be a good replacement for Michigan Public Power Agency bonds. Finally, Austen would sell San Antonio Electric and Gas bonds, and purchase in their place bonds of the South Carolina Public Service Authority.
The Treasury, subject to Congress raising the debt ceiling by auction time, will offer a seven-year note on Wednesday, and a 20-year bond on Thursday. Both will be in minimums of $1,000 and should return 12.40 percent and 12.30 percent respectively.