United Parcel Service Inc. (NYSE:UPS) is seizing the opportunity in the US high-grade bond market on Monday, aligning with a flurry of firms rushing to issue bonds before the Memorial Day holiday weekend.
The renowned package delivery company is offering bonds in three segments, spanning 10 years, 30 years, and 40 years, as per sources familiar with the matter. The longest tranche of the deal is anticipated to yield around 1.05 percentage points above Treasuries, reflecting a slight adjustment from earlier estimates hovering around 1.25 percentage points. UPS’s decision to enter the bond market marks its first blue-chip bond offering this year, following its last issuance in February 2023, where it raised $2 billion. At the close of 2023, UPS held approximately $26.7 billion in total outstanding debt.
CreditSights analysts Matt Woodruff and Arda Tirnakli estimate the total deal size to reach $2.5 billion, surpassing previous expectations for the company in 2024. However, despite this move, UPS remains the least favored IG Transportation name among analysts due to its recent increase in leverage targets.
In April, UPS reported first-quarter profits that surpassed analysts’ forecasts, attributing its success to effective headcount management and restructuring efforts in delivery routes. Nevertheless, the company faces a shift in its leadership as Chief Financial Officer Brian Newman plans to depart on June 1 to prioritize his health.
Despite the attractiveness of initial price talk for the bond deal, CreditSights analysts remain cautious, considering the expected earnings decline in the second quarter of 2024 and UPS’s higher leverage tolerance. Nevertheless, they express willingness to participate in the deal, albeit with discerning terms.
Bank of America Corp., BNP Paribas, Goldman Sachs Group Inc., Morgan Stanley, and JPMorgan Chase & Co. are overseeing UPS’s bond sale, with co-managers including minority-owned businesses Loop Capital, Ramirez Asset Management, Siebert, and Telsey Advisory Group.
UPS’s bond issuance contributes to a busy day in the US investment-grade bond market, with a total of 10 firms marketing debt, signaling heightened activity ahead of the Memorial Day holiday weekend. Syndicate desks anticipate a volume ranging from $25 billion to $30 billion for the week.
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