By Tom Zanki

Law360 (May 29, 2020, 7:25 PM EDT ) The tidal wave of corporate debt offerings in recent months has enabled companies to raise billions in cash and gain much-needed breathing room to navigate the coronavirus pandemic, setting records and ushering in several first-of-their kind deals along the way.

The surge in debt offerings began in March as the coronavirus outbreak accelerated, halting U.S. economic activity and roiling financial markets. The early boom was mostly limited to investment-grade companies looking to bolster their balance sheets in wildly uncertain times.

But by April, companies with credit ratings below investment grade joined the rally, encouraged by the Federal Reserve's unprecedented commitment to buy certain bonds from companies with more speculative credit rankings, sometimes referred to as "junk." More recently, the bond rally has expanded to include convertible debt, which are hybrid securities involving debt and equity.

Total debt proceeds have soared at a mind-boggling clip. Investment-grade companies have raised $741.1 billion year to date, more than double the year-ago pace, according to data provider Dealogic. Such companies have cumulatively raised at least $190 billion alone for the months of March, April and May, dwarfing the amounts raised during those months in 2019.

This tsunami of debt offerings has broken many barriers, both in terms of money raised and the types of deals executed, including several first-of-their kind offerings. The result is a frenetic pace of debt issuance that has kept capital markets lawyers furiously busy.

"If you would have told me on March 16 that the next two and a half months would have been as crazy-busy as they are, I would have said you are out of your mind," Cleary Gottlieb Steen & Hamilton LLP partner Jeff Karpf said. "But the world works in funny ways."

Here, Law360 looks back at four landmark bond offerings of the past few months.

Boeing Goes Jumbo With $25 Billion Bond

Aerospace giant Boeing Co. issued the largest corporate bond so far this year — and one of the largest ever — on May 1, when it sold $25 billion to boost its cash reserves.

The mammoth deal, guided by Boeing counsel Kirkland & Ellis LLP and underwriters' counsel Shearman & Sterling LLP, is also the largest corporate bond ever that wasn't sold to fund an acquisition, according to Dealogic. Boeing has said the funding was part of a strategy to "keep liquidity flowing" through the business and some 17,000 companies that form its supply chain. Verizon Communications Inc. holds the record for the largest corporate bond ever, with a $49 billion issuance in 2013.

The offering came at a pivotal time for Boeing, whose bond rating was downgraded in April by S&P Global Inc. to one notch above speculative grade. S&P said it was lowering Boeing's rating to BBB-/A-3 from BBB/A-2 — the bottom of the investment-grade category — given concerns that the company's cash flow would suffer as the pandemic reduces demand for aircraft.

The bond sale was reportedly oversubscribed, providing welcome news for Boeing considering its credit and economic challenges. Shearman & Sterling LLP partner Lisa Jacobs, who advised underwriters on the deal, pointed out that a large chunk of Boeing revenue comes from military customers, which may have eased concerns of investors looking for a safe place to park cash.

"From both an issuer and a market standpoint, it makes total sense," Jacobs said. "Companies want to make sure they have adequate liquidity to get them through their worst-case scenarios, and investors want a fixed rate of return from companies that they are comfortable will be able to service the debt."

Ford Revs Up First High-Yield Bond

While Boeing, at least so far, has avoided seeing its credit rating reduced to below investment grade, automaking giant Ford hasn't been as fortunate. S&P Global in March downgraded its credit rating to BB+, lowering the company to speculative grade, citing concerns that the pandemic would reduce demand for new vehicles.

Despite the setback, Ford on April 17 sold $8 billion worth of high-yield bonds, meaning bonds that pay higher interest to offset the risk of investing in a non-investment grade company. Investors embraced the offering, which marked the largest U.S. high-yield bond ever. Jacobs, who advised Ford's underwriters, said the automaker received demand for $40 billion in notes.

Ford sold bonds with maturities spanning from three to 10 years, paying investors between 8.5% and 9.625% interest. The yield was attractive enough to draw hordes of investors to a company that Jacobs noted has endured for more than a century and weathered the financial crisis of 2008-09 without taking federal bailout money under the Troubled Asset Relief Program.

"Given the interest rate that Ford was paying, absolutely I understand why there was $40 billion in demand," Jacobs said.

Bank of America Issues COVID-19 'Social Bond'

While the Ford and Boeing bonds were designed solely to provide economic relief, Bank of America has taken a different approach by becoming the first U.S. commercial bank to issue a "social bond" to support loans to those on the frontline fighting COVID-19.

The bank sold $1 billion in bonds on May 19, using proceeds to support health care industry lending within its banking system. The company said it is specifically seeking to bolster lending to not-for-profit hospitals and skilled nursing facilities that treat COVID-19 patients, or businesses that make protective equipment, diagnostic tests or vaccines to treat the virus.

"The proceeds from this offering will help deliver critical resources for the companies involved in the testing, diagnosis, treatment and prevention of this insidious virus, while providing investors an opportunity to join us in this all-important effort," Bank of America Vice Chairman Anne Finucane said in a statement after the offering was priced.

McGuireWoods LLP and Davis Polk & Wardwell LLP advised the company on the four-year offering, which pays investors an annual yield of 1.486%.

Citi Goes Green With Dollar-Backed Bond

Yet Bank of America wasn't the only company issuing bonds for a targeted purpose. Financial services giant Citigroup Inc. issued its first ever U.S.-dollar denominated "green bond," which funds environmentally friendly initiatives, on May 7 with a $1.5 billion issuance. The bond followed Citi's first green bond, denominated in euros at €1 billion, in January 2019.

Green bonds are technically not much different from ordinary bonds except that companies have to spend proceeds on certain environmentally friendly purposes outlined in their prospectus. In Citi's case, funds could be spent on things like renewable energy facilities or energy-efficient warehouses, among other things.

Karpf, who advised Citi on the deal, said green bonds are generally straightforward from a legal standpoint, though lawyers must ensure companies use concise language in their prospectuses to describe how they will spend proceeds. This differs from a corporate website, where companies may use broader language to promote their environmental strategy.

Green bonds were first issued more than a decade ago but have accelerated in recent years. Given the huge uptick in bond sales in recent months, lawyers say it's not surprising to see companies innovate and try new things.

"The depth of the markets now has allowed companies to engage in first-of-their kind type offerings, like the Citi one or the BofA one," Karpf said.

--Editing by Philip Shea.

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