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Time Warner offering $ 1 billion in new debt

Time Warner yesterday flooded the bond markets again with $ 1 billion worth of new debt for its second mammoth financing this year, taking advantage of the lower interest rate environment to refinance its high coupon debt.

The company sold $ 500 million worth of five-year notes that will pay interest of 7.45% and another $ 500 million worth of seven-year notes with interest of 7.95%.

The company is offering different maturities of its bonds so that investors will not be overwhelmed by the amount of debt that it is currently selling in the marketplace.

The portfolios of its target investors — pension funds, insurance companies and mutual funds — are divided into different maturities pools, and by targeting each pool, TW is making sure its debt won’t go unsold — the risk any issuer takes in the marketplace.

Two weeks ago, for example, the company issued $ 1 billion worth of 20-year notes carrying interest at 9.125% in its first straight public bond offering since its merger. It is likely to come to market for another $ 1 billion soon, a result of a Rule 415 shelf registration for $ 2 billion it filed last week.

The latest debt issue was selling well yesterday, according to Salomon Brothers, one of the three underwriters that syndicated the bonds to an array of pension funds, mutual funds, insurance companies and other institutional investors.

TW’s issue was the largest corporate debt offering in the market yesterday, which triggered higher demand by buyers.

However, the company still suffers from the effect of a split debt rating.

Moody’s Investors Service rated the notes Ba2, or a high grade of junk bond, whereas Standard & Poor’s rewarded the offering a BBB-, which places it as investment grade. S&P upgraded its outlook on TW’s debt last fall to low investment grade.

The result of the split rating, however, is that the company still can’t raise debt at the lower interest rates that full investment grade companies win in the marketplace.

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