Bank of America Merrill Lynch may not be a household name in Australia but in financial markets they are extremely well-known. At one stage it was the largest financial services company in the world and while it is not a frequent issuer in Australian debt markets in its own right, from time to time it has been known to issue bonds. The last transaction by their Australian branch was in October 2015 and prior to that, the parent company sold five year bonds in a dual tranche transaction in 2013.
This week BoAML have returned the domestic bond markets with another dual tranche five year deal. In May 2013, BoA issued $900 million worth of five year bonds split 50/50 between fixed and floating. Pricing back then was 142bps above Swap/3m BBSW. This latest transaction is weighted in favour of the floating rate note component ($550 million) rather than the fixed component ($250 million) and the pricing is more expensive in relative terms as the margin to Swap/BBSW has been set at 155bps.
BoA may not be overly-concerned by the wider spreads it will be paying on these bonds. The term structure of rates around the world has fallen since 2013. In absolute terms the yield to maturity on the fixed component is considerably lower and BBSW is now below 2% whereas in 2013 it was closer to 3%. In terms of interest expense this latest transaction will look better in their profit and loss statement. Ultimately, this is where BoA’s management and shareholders will focus.