United Parcel Service Inc. is tapping the US high-grade bond market on Monday with a benchmark deal as firms rush to sell bonds ahead of the Memorial Day holiday weekend.
The package delivery company is selling bonds in three parts, maturing in 10 years, 30 years and 40 years, according to a person familiar with the matter. The longest portion of the deal may yield in the area of 1.05 percentage point above Treasuries, said the person, declining to be identified as they’re not authorized to speak about it, after earlier discussions in the area of 1.25 percentage point.
The deal marks the delivery service’s first blue-chip bond offering this year, having last tapped the market in February 2023 with a $2 billion sale. UPS had about $26.7 billion of total debt outstanding at the end of 2023, data compiled by Bloomberg shows.
“We estimate the total deal size will be $2.5bn, which would be higher than what we penciled in for the company in 2024,” wrote CreditSights analysts Matt Woodruff and Arda Tirnakli in a Monday note. “UPS is our least favorite IG Transportation name at the moment as they have recently increased their leverage target by 1.0x to 2.5x.”
UPS reported first-quarter profits in April that beat analysts’ estimates, as the courier’s headcount management and restructuring of its delivery routes began to bear fruit. Earlier this month, the shipping giant said that Chief Financial Officer Brian Newman will leave the company on June 1 to focus on his health.
“We are likely to maintain our Underperform recommendation for now, given the further expected earnings decline in 2Q24 and higher leverage tolerance, in addition to today’s higher than expected issuance,” wrote the CreditSights analysts.
“Initial price talk on the deal does appear attractive, however, with concessions at IPT in the 30-33 bp range,” the CreditSights analysts noted. “We’d be willing to hold our nose and play this deal, at +75, +100 and +110 on the 10 Yr, 30 Yr and 40 Yr respectively.”
Bank of America Corp., BNP Paribas, Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co. are managing UPS’s bond sale, said the person familiar.
The co-managers on the offering are minority-owned businesses Loop Capital, Ramirez Asset Management, Siebert, and Telsey Advisory Group, said UPS, declining to comment further.
UPS is one of 10 firms marketing debt in the US investment-grade bond market on Monday, ahead of an expected slowdown in activity as the Memorial Day holiday weekend approaches. Syndicate desks are calling for between $25 billion to $30 billion of volume for this week.
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