Yesterday, Bloomberg reported that American Express Co.‘s (AXP) (AmEx) American Express Credit Corp. increased the $1.3 billion notes issued in September this year to $2.3 billion.
Accordingly, the $2.3 billion senior notes are now issued at a price of $100.034, up from the original issue price of $99.917, and will mature on September 19, 2016. The non-callable notes are projected to have a coupon rate of 2.8%, while the new spread stands at 190 basis points (bps) over the existing 3-month LIBOR, down from the previous spread of 192 bps above the existing 3-month LIBOR.
Moreover, the combined lot of AmEx Credit notes is now expected to generate a yield of 2.792%. In addition, the settlement is scheduled to be over on November 21, 2011. Furthermore, AmEx has appointed Citigroup Global of Citigroup Inc. (C), Goldman Sachs Group Inc. (GS) and UBS AG (UBS) as joint book-running managers for the sale.
Our Take
AmEx kept vending notes in different tranches even earlier in 2011. Moreover, with Moody’s upgrading its ratings outlook on AmEx and its subsidiaries to ‘stable’ from ‘negative’ in May this year, it further validates the company’s strong capital and balance sheet position. The rating agency also affirmed its status “A3” rating on AmEx’s long-term debt, placing it at an upper-medium level of the investment grade.
AmEx has pulled itself out of the recession quicker than its rivals, owing to its credit worthy customers. Moreover, less reliance on revolving credit and back-end fees along with fairly balanced debt maturities have helped gain competitive advantage while also improving its overall risk profile. In addition, there has been an impressive recovery in credit trends, with increased card spending and strong billings over the last few quarters.
However, concerns hover around the company’s funding, for which AmEx is mostly dependent on the capital market rather than the comparably rated banks. A majority of the company’s funds comes from unsecured debt and securitization, which again pose a risk on AmEx’s capital position in case a volatile economy brings in another credit slump.
