SARA LEE CORPORATIONS EUROBONDS

MINI CASE: SARA LEE CORPORATIONS EUROBONDS

Sara Lee Corp. is serving up a brand name and a shorter maturity than other recent corporate borrowers to entice buyers to its first-ever dollar Eurobonds. The U.S. maker of consumer products, from Sara Lee cheesecake to Hanes pantyhose and Hillshire Farm meats, is selling $100 million in bonds with a 6 percent coupon. These are three-year bonds; other corporate bond sellers including Coca-Cola Co., Unilever NV, and Wal-Mart Stores, Inc., have concentrated on their five-year maturities.

It is a well-known name and it is bringing paper to a part of the maturity curve where there is not much there, said Noel Dunn of Goldman Sachs International. Goldman Sachs expects to find most buyers in the Swiss retail market, where high-quality American corporate paper is their favorite buy, Dunn said.

These are the first bonds out of a $500 million Eurobond program that Sara Lee announced in August 1995, and the proceeds will be used for general corporate purposes, said Jeffery Smith, a spokesman for the company.

The bond is fairly priced, according to Bloomberg Fair Value analysis, which compared a bond with similar issues available in the market. The bond offers investors a yield of 5.881 percent annually or 5.797 percent semiannually. That is 22 basis points more than they can get on the benchmark five-year U.S. Treasury note.

BFV analysis calculates that the bond is worth $100,145 on a $100,000 bond, compared with the re-offer price of $100,320. Anything within a $500 range on a $100,000 bond more or less than its BFV price is deemed fairly priced. Sara Lee is rated AA- by Standard & Poors Corp. and A1, one notch lower, by Moodys Investors Service.

In July 1994, Sara Lees Netherlands division sold 200 million Dutch guilders ($127 million) of three-year bonds at 35 basis points over comparable Netherlands government bonds. In January, its Australian division sold 51 million British pounds ($78 million) of bonds maturing in 2004, to yield 9.43 percent.

Analyze the case and give your thoughts do you have about Sara Lees debt-financing strategy?