Wal-Mart sold $1 billion of 0.6 percent notes due April 2016 that yield 30 basis points more than similar-maturity Treasuries. That's the narrowest spread for similar-maturity corporate debt this year, eclipsing the 35 basis-point gap awarded to GlaxoSmithKline Plc, PepsiCo Inc. and Praxair Inc., Bloomberg data show.

The deal also included $1.25 billion of 1.125 percent debt maturing in April 2018, $1.75 billion of 2.55 percent, 10-year debt and $1 billion of 30-year securities that pay a 4 percent coupon to match the 2013 low previously recorded by Medtronic Inc. and Anheuser-Busch InBev NV.

“Wal-Mart remains committed to maintaining a strong balance sheet, which combined with our solid free cash flow and AA credit rating helped us secure favorable coupons,” said Randy Hargrove, a company spokesman.

Each of Wal-Mart's coupons are lower than the average for similar-maturity debt ranked AA, at least seven levels above speculative grade, as of April 3, according to prices compiled by Bloomberg. Wal-Mart is rated Aa2 by Moody's Investors Service and an equivalent AA by Standard & Poor's.

Interest Cost

The company's weighted average coupon of 2.09 percent on yesterday's transaction is about half the 4.02 percent paid on its $3.69 billion of dollar-denominated debt maturing this year, Bloomberg data show.

“They're going to slash their interest expense with this issue,” said Nikhill Patel, an analyst at San Antonio-based Frost Investment Advisors LLC, which oversees $9 billion. “Investors are drawn to the strong free cash flow and operating margins that Wal-Mart generates.”

Wal-Mart's $12.7 billion of free cash in the 12 months ended Jan. 31 is more than eight times the funds generated by Costco Wholesale Corp., the largest U.S. warehouse club. An operating margin of 5.93 percent exceeds every U.S. food and staples retailer with market values bigger than $5 billion except Whole Foods Market Inc., Bloomberg data show.

Before yesterday's sale, Wal-Mart's debt underperformed similarly rated bonds this year. A price decline of 1.82 percent for the company's notes compares with a 0.7 percent drop in AA rated securities, according to Bank of America Merrill Lynch index data.

The company is facing obstacles. A decline in the retailer's U.S. workforce even as it opens new stores has coincided with customer frustration that there aren't enough employees to keep shelves stocked, cash registers manned and shoppers' questions answered. Staffing at Wal-Mart and Sam's Club outlets in the U.S. has declined by about 120,000 employees since 2008 to 1.3 million, according to regulatory filings. In the same period, the number of stores grew to 4,005 from 3,550, the documents show.

That's benefited companies such as Target Corp., which has an operating margin of 7.11 percent, as customers seek alternatives.

'Execute Superbly'

Wal-Mart's in-stock shelf availability is at historically high levels and averages between 90 percent and 95 percent, Hargrove said.

Same-store sales for Wal-Mart's U.S. locations in the 13 weeks ending April 26 will be little changed from a year earlier, Bill Simon, chief executive officer of Wal-Mart U.S., said on a Feb. 21 teleconference to discuss fourth-quarter results with analysts and investors.

The company, which spent $157 million in the year ended Jan. 31 linked to its investigations of possible bribery in its international operations, said last month that it expects to continue incurring costs related to the probes. The U.S. Department of Justice and the Securities and Exchange Commission, as well as federal and local government agencies in Mexico, are also examining bribery allegations.

While Wal-Mart doesn't expect those matters to have a material adverse effect on its business, the company said it can't reasonably estimate the potential loss.

“Most of the issues people raise are issues that a shareholder might care about but not a bondholder,” said Carol Levenson, director of research at Chicago-based Gimme Credit LLC, which rates Wal-Mart's debt “stable.” “This is perhaps the strongest, steadiest retailing credit out there. They know what they're doing and generally they execute superbly.”

Bloomberg

Copyright 2018 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.