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100 year bonds


KinAlberta
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Any thoughts on how these can turn out for issuers and investors?

 

Some trivia: Canada once issued perps. in the 1930s.  I 'inherited' one 1937 3.75% perpetual in the early 1980s.  It was in a small trust fund that my grandfather had set up for each of the grandkids. The trust was managed by a trust company!  Did I mention that it was a small trust fund I received.

 

 

 

 

July 23, 1993

 

Business Digest

Coca-Cola Follows Disney In Selling 100-Year Bonds

...

Companies have been extending the maturities of their debt, locking up today's low interest rates for uncommonly long periods. But Disney and Coke are borrowing for twice the length of time as any of the others has."

 

http://community.seattletimes.nwsource.com/archive/?data-ipsquote-timestamp=19930723&slug=1712406

 

 

Bankers Pitch 100-Year Bonds

By KATY BURNE

Updated Aug. 23, 2010

http://www.wsj.com/articles/SB10001424052748704488404575442021845873594

 

 

Should You Consider Buying 40, 50 Or Even 100 Year Bonds?

When the Treasury issues debt it could be for a maturity date anywhere from a few days from now to 30 years out.  In the mortgage market, most people are familiar with the traditional 30 year mortgage.  So people may assume that 30 years is the longest maturity there is.  In reality, some companies issue 40 year, 50 year or even 100 year bonds.  Some governments issue bonds that mature in, well, never!

 

40 year bond issues seems to be getting more popular as companies like Microsoft and AIG have talked about issuing their own (or have already done it).  Coca Cola and Disney famously launched 100 year bond issues in the past.  Coca Cola’s 100 year bond actually has a solid coupon of 7.375% but before you yield chasers go clamoring to buy some remember that the bond trades at about a 55% premium to par meaning its actual yield to maturity is about 4.75%.  Still not a bad yield especially considering today’s rock bottom yields.

 

But should you consider buying these? ..."

 

http://getsmartgetwealthy.com/2015/05/should-you-consider-buying-40-50-or-even-100-year-bonds/

 

 

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Makes sense for companies to issue these kind of bonds with interest rates here. The UK Treasury flirted with the idea of 100 year bonds a couple of years ago but in the end they did not go through with it, I think investor appetite wasn't too great. I guess people aren't that stupid after all :)

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Petrobras just issued 100-year bonds yielding 8.45%. The PV of the final principal is almost nothing at this yield (3 cents per 100$ notional per my estimate). This is kind of an annuity with some default risk.

 

http://www.reuters.com/article/2015/06/02/brazil-petrobras-bonds-idUSL1N0YO01V20150602

 

I'm still having trouble wrapping my head around these. On the one hand we have PBR today facing internal scandals, low oil prices and government that uses them as their own piggybank when the need arises. On the other hand a hundred years is a long time, it's almost certain that the challenges faced by PBR today will seem minor when compared to those faced at some point in the next hundred years. I just find it kind of amusing they were able to pull this off when everything else said about them in the last couple months has been incredibly negative relating to their abysmal corporate governance.

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Guest Schwab711

Petrobras just issued 100-year bonds yielding 8.45%. The PV of the final principal is almost nothing at this yield (3 cents per 100$ notional per my estimate). This is kind of an annuity with some default risk.

 

http://www.reuters.com/article/2015/06/02/brazil-petrobras-bonds-idUSL1N0YO01V20150602

 

I'm still having trouble wrapping my head around these. On the one hand we have PBR today facing internal scandals, low oil prices and government that uses them as their own piggybank when the need arises. On the other hand a hundred years is a long time, it's almost certain that the challenges faced by PBR today will seem minor when compared to those faced at some point in the next hundred years. I just find it kind of amusing they were able to pull this off when everything else said about them in the last couple months has been incredibly negative relating to their abysmal corporate governance.

 

I'm suspicious of who actually purchased the bonds and why. This could be a sort of professional kick-back or quid pro quo. There were only 2 book-runners for a $2.5B 100 year issue of a company that just had $17B in write-offs! The demand seems unnatural. Also, the devil may be in the details depending on the covenants (not sure what is standard in Brazil and if Petrobras included any non-standard provisions).

 

This deal probably has nothing in common with the DIS or KO 100y bonds that were issued.

 

http://247wallst.com/energy-business/2015/06/03/does-the-petrobras-100-year-bond-offering-have-a-government-guarantee/

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My guess is some insurance companies with long dated liabilities (neutralizing the rate risk of the product).  But Petrobras is probably a B credit if they didn't have sovereign support, so tough to immunize liabilities with that.

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