Think you’ve got a good mortgage rate? Thanks to record-low interest rates, Bankrate.com says consumers with good credit can get 30-year fixed-rate mortgages for about 3.75% today. 15-year fixed mortgages are going for as little as 3%, and homeowners who like to spin the wheel can take out a five-year adjustable rate mortgage for less than 2.7%.
Great rates, no doubt — but IBM (IBM) has got them all beat.
Last week, IBM floated its latest round of “record-low interest rate” debt, selling $900 million worth of three-year corporate bonds paying a mere 0.75% in interest. The company snagged a further $600 million in cash, selling seven-year bonds that yield 1.875%.
And IBM’s not alone. Ford (F), Berkshire Hathaway (BRK.A), and British drinks conglomerate Diageo (DEO) are all tapping debt markets as well. They’re raising billions of dollars in cash and paying historically low interest rates on their bonds — rates any American homeowner would kill for.
What’s more, IBM doesn’t even need the money. It already has a bank account brimming with $12.4 billion in cash (so the lenders know IBM is at least good for the interest for a while — especially at these rates)! And last year, IBM raked in more than $16.3 billion in free cash flow. It generated more than twice as much cash in a single quarter as it will raise from these two bond offerings combined.
So why is IBM asking for a loan?
Your guess is as good as theirs.
Announcing its bond sale, IBM explained that it plans to use the cash “for general corporate purposes.” In other words, they’ll spend it on pretty much anything they want to — stock buybacks, mergers and acquisitions, gold-plated toilet seats for the executive washroom, whatever. And this response is good enough for bond buyers, who are jumping at the chance to throw money at IBM.
In this respect, at least, it seems that giant, multinational companies are just the same as the rest of us. When you’re pressed for cash and the debt collectors are at the door, you can’t beg, borrow, or steal a loan. But what about when your bank account is flush and you’ve got more money than you know what to do with? Suddenly your mailbox is stuffed with pre-approved credit card applications and “0% promotional account balance transfer” offers.
Hey, maybe corporations really are people, after all.
Motley Fool contributor Rich Smith holds no position in any company mentioned. The Motley Fool owns shares of Ford and IBM. Motley Fool newsletter services have recommended buying shares of Diageo and Ford, as well as creating a synthetic long position in Ford Motor.
Tagged: Bankrate, Berkshire Hathaway Inc, Corporate Bonds, CorporateBonds, Diageo PLC, Finance, Ford Motor Company, IBM bonds, IbmBonds, low interest rates, LowInterestRates, mortgage rates, MortgageRates,