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ups targets optimal market timing with high grade bond issue ahead of memorial day 27

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UPS Targets Optimal Market Timing with High-Grade Bond Issue Ahead of Memorial Day

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Benjamin Hughes

May 20, 2024 - 17:28 pm

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UPS Launches Benchmark Bond Deal Amid Rush to Market Before Memorial Day

In a strategic move to secure financing, United Parcel Service Inc. (UPS) made waves in the US high-grade bond market on Monday. The renowned package delivery company has embarked on a benchmark bond deal, seeking to leverage the financial landscape ahead of the upcoming Memorial Day holiday weekend.

UPS Taps Bond Market with Three-Part Deal

UPS, with its fleet of delivery trucks and vast logistics network, has become a fixture on the bustling streets of cities like San Francisco, California. The company is now selling bonds distributed in three parts. These bonds, diverse in their tenure, are set to mature in 10, 30, and 40 years. Sources privy to the details of the deal, who desired to remain unnamed due to the sensitivity of their disclosure, reported that the deal's longest leg might yield approximately 1.05 percentage points above Treasuries. This insight comes after initial discussions that projected a yield near 1.25 percentage points.

The transaction denotes UPS's inaugural premiere bond offering within the current year. The last occasion UPS tapped the market was in February 2023, concluding a robust $2 billion sale. According to data amassed by Bloomberg, UPS had a significant $26.7 billion of total outstanding debt at 2023’s conclusion.

CreditSights analysts, including Matt Woodruff and Arda Tirnakli, conveyed in a Monday statement their estimate of the total deal size to be at about $2.5 billion. This figure surpasses their initial predictions for the company for the year 2024. However, they also expressed a conservative perspective towards UPS as their least favored investment-grade Transportation entity, citing the company's recent amplification of its leverage target from 1.5x to an elevated 2.5x.

UPS Q1 Profits Exceed Expectations

In April, UPS reported its first-quarter profits, which surpassed the anticipations of analysts. The courier's sophistication in managing its headcount and the strategic restructuring of its delivery pathways contributed to these favorable outcomes. Additionally, earlier in the month, UPS announced that their Chief Financial Officer, Brian Newman, intends to depart from the company on June 1 to prioritize his health.

Despite these positive indicators, the analysts at CreditSights plan to maintain their Underperform recommendation for the moment. They base this decision on the prospects of a further expected decline in earnings for the second quarter of 2024 and an enhanced tolerance for higher leverage. The higher-than-anticipated bond issuance added weight to their outlook.

Moreover, initial price talks surrounding the bond deal emerged as persuasive, with concessions at initial price talk in the range of 30 to 33 basis points. The CreditSights analysts signified a willingness to engage in this transaction, noting specific yields they would entertain for each maturity term.

Financial Giants Oversee UPS Bond Issue

The bond sale is being overseen by a team of formidable financial institutions. Bank of America Corp., BNP Paribas, Goldman Sachs Group Inc., Morgan Stanley, and JPMorgan Chase & Co. have assumed the mantle of managing UPS's bond issue, according to the informed source.

In a progressive collaboration, UPS has chosen co-managers for the offering from minority-owned businesses. These include Loop Capital, Ramirez Asset Management, Siebert, and Telsey Advisory Group. UPS, however, has refrained from further comments on this matter.

Market Anticipates High Volume Before Holiday Slowdown

UPS stands among ten other enterprises engaging in the marketing of debt within the US investment-grade bond market this particular Monday. Analyses from syndicate desks forecast an impressive $25 billion to $30 billion in volume for the week, preceding a predicted downturn in activity as the Memorial Day holiday weekend draws near. Market professionals are seizing the opportunity to capitalize on the current market situation before the expected lull.

A UPS delivery truck in San Francisco, California.

United Parcel Service Inc., a highly respected figure in the delivery and logistics industry, looks to build on its robust market presence with this recent benchmark bond deal. With a strategic issuance lined up ahead of the Memorial Day holiday slowdown, UPS is skillfully navigating the bond market landscape.

The move testifies to the company's skillful financial management even as it faces the looming departure of CFO Brian Newman. The financial community watches closely as UPS reinforces its operational performance with a potent mix of profit enhancements and a calculated approach to debt management.

As the US high-grade bond market witnesses a flurry of activity, UPS's timing and choice of co-managers for the deal reflect a measured approach to diversity and incorporation of expertise. The designated yields and terms of the issuance are poised to attract interest from a variety of investors, balancing appeal and risk in a finely-tuned financial instrument.

With the comprehensive assistance from a selection of industry-leading banks and financial services companies, UPS's strategic bond offer is set to contribute notably to the week’s projected high volume in the investment-grade market. The company's first significant bond sale of the year comes at a critical juncture—ahead of the expected holiday-induced market slowdown.

Investors and analysts alike will undoubtedly monitor the progress of this benchmark deal, as it may set a precedent for other players in the transportation and logistics sector. UPS's maneuver is a demonstration of proactive financial planning, potentially setting the stage for future financing operations amid the ever-evolving economic landscape.

As Memorial Day approaches, the bond market braces for a dip in activity. However, UPS's endeavor to complete its bond sale in a time frame that optimizes potential success illustrates a keen awareness of market rhythms and investor behavior.

The involvement of credit experts like CreditSights in evaluating and providing recommendations regarding UPS's financial moves showcases the multifaceted nature of investment decisions in corporate finance. While CreditSights maintains a cautious stance, their openness to participating in the deal underscores the nuanced attractiveness of UPS's bond offering.

The feat of executing such a sizeable transaction in a rapidly evolving market underscores UPS's commitment to sustaining and further strengthening its financial position. The delivery giant's multi-tiered bond offering also reflects an astute reading of prevailing market conditions, catering to the investment community's varying appetites for bonds with different maturities.

In summary, with the strategic guidance of leading financial institutions and the support of minority-owned businesses, UPS's benchmark bond deal is not only an important financial event for the company but also signifies a broader impact on the US investment-grade bond market. As the holiday weekend nears, all eyes remain on how this issuance will unfold amidst the bustling financial market activity.

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