Last week, American Express Co.’s (AXP) (AmEx) American Express Credit Corp sold senior unsecured floating-rate notes worth $600 million, according to Thomson Reuters.
The senior floating-rate notes were issued at a price of $100.00 and are dated to mature on June 24, 2014. The non-callable notes are projected to have a coupon rate of 85 basis points over the existing 3-month LIBOR rate. Interest is payable quarterly, in equal instalments, commencing September 24, 2011. Besides, the settlement is scheduled to be over on June 24, 2011.
The notes carry a rating of “A2” from Moody’s Investor Service of Moody’s Corp. (MCO), “BBB+” from Standards & Poor’s and “A+” from Fitch. AmEx appointed Bank of America Merill Lynch of Bank of America Corp. (BAC) and UBS Securities LLC of UBS AG (UBS) as joint book-running managers for the sale.
Earlier this month, AmEx had sold long-term notes worth C$725 million in two tranches. The first set of floating-rate notes were worth C$325 million maturing in 3 years, due date being June 6, 2014. Issued at a price of C$100.00, the settlement of these notes is dated for June 6, 2011.
Meanwhile, the second tranche of notes was worth C$400 million maturing in 5 years, with the due date June 3, 2016. Issued at a price of C$99.973, the coupon rate is fixed at 3.6% for these notes. The settlement is also scheduled for June 6, 2011.
Our Take
Last month, Moody’s also raised its ratings outlook on AmEx and its subsidiaries to ‘stable’ from ‘negative.’ 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 more swiftly than its rivals, owing to its creditworthy customers. Moreover, less reliance on revolving credit and back-end fees along with fairly balanced debt maturities has helped gain competitive advantage while also improving its overall risk profile. Besides, 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 other comparable banks. About 66% of the company’s funds source comes from unsecured debt and securitization, which again poses a risk to AmEx’s capital position in case a volatile economy brings in another credit slump.
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