Loans Are Cheaper Than Bonds for Some Highly Rated Companies

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With the Fed approving a 0.75-percentage-point rate increase, finance chiefs are doing the math as they weigh alternative instruments to pay for maturing debt, mergers and acquisitions or other transactions

a manufacturer of cigarettes and vaping devices, in recent months secured financing via term loans.

Term loans often have a shorter duration than bonds, with many of them ranging from three to five years. Companies that agree to take out a loan don’t have to draw on it, which can make it more like insurance than a bond, where investors pay the company soon after the deal has closed. Revolving credit facilities differ from term loans insofar as the borrower can draw funds up to a limit, repay and redraw again.

Conagra has about $937 million coming due in bond debt in calendar year 2023, according to S&P Global Market Intelligence, a data provider. The company, which had different financing options, said it chose a term loan due to the “relative strength of the bank loan market.” It last tapped the bond market in August 2021, S&P data show.

Philip Morris, which in June agreed to $5.8 billion in term loans alongside a bridge facility to fund its offer for

 

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