Norfolk Southern Prices $250 Million In Upsized 6% 100 Year Bond Reopening To Yield 5.95%

Tyler Durden's picture

Need a 100 year inflation outlook? The market has spoken, and courtesy of the liquidity glut, it appears the outlook a century down the line, is for a 5.95% inflation give or take (yes, yes, we know this is not scientific: we are hoping the soon to be released 100 Year swap spreads will give a better read). One wonders what happens to this yield if the Fed's trillions in free money sloshing around the markets are eliminated.

Full pricing grid, courtesy of sole manager (and recent deflationist) Goldman Sachs:

Norfolk Southern Corp "NSC" Baa1/BBB+/BBB+ (s/s/s) upsized USD250m (up from $100m) 100y reopening of 6.00% March 2105 sr fixed rate notes launched at 5.95%. GS (sole books). Co-mgrs: Barclays.  UOP: GCP. Pricing today.   Original USD300m issue priced March 7 2005 (6.00% at 100).

More from Dow Jones:

Norfolk Southern Corp .'s (NSC) reopening of its 100-year bond, first issued in March 2005, has launched at 5.95%, inside price talk of 6%, according to a person familiar with the sale. The sale has also been upsized to $250 million from original guidance of around $100 million.

The Norfolk, Va.-based railroad's new senior fixed-rate bonds, which come on top of the existing $300 million sold in 2005 and also maturing in 2105, are expected to be rated Baa1 by Moody's Investors Service and BBB+ by both Standard & Poor's and Fitch Ratings.

Bankers have estimated the issuer will need to pay a premium of roughly 0.75 percentage points more than what it would cost them to sell 30-year debt. The original deal from 2005 sold at par with an interest rate of 6%, and with a spread over Treasurys of 1.37 percentage points. Another 100-year bond the company sold in 1997 for $350 million, which was part of a $4.3 billion deal, had a spread of 0.97 percentage point over Treasurys.

Goldman Sachs is lead bookrunner on Monday's sale, proceeds from which will be used for general corporate purposes, according to the person familiar with the sale.

A spokesman for the issuer said its "decision to reopen the 100-year bonds was based on the current low [interest] rates, coupled with the strong appetite among buyers for them."

Bankers have been pitching century bonds selectively in recent weeks because Treasury rates are so low that issuers can lock in 100-year financing at reasonably attractive rates. At the same time, investors are sitting on piles of cash and looking to put it to work in corporate bonds, where where they are seeking longer-dated assets that give them higher yields.

Investors say that 100-year bonds aren't much more sensitive to interest rate moves than are 30-year bonds.

Century bonds were very popular earlier this decade and in the mid-1990s, but they aren't very liquid in secondary trading, meaning that they only make sense for certain types of investors. Life insurers and pension funds are the likely buyers and market chatter last week suggested there was around $100 million of capacity among these buyers for a 100-year bond. Investors prefer bond issues to be at least $250 million in size so they are eligible for inclusion in the Barclays Capital Aggregate Bond Index, like the Norfolk Southern 2105 bonds are.

Driving more pension fund interest will be the Pension Protection Act of 2006, which Michael Collins, senior investment officer for Prudential Fixed Income, said over time will encourage pension fund managers to minimize risk between their assets and liabilities even more than they do now.

Issuers have been shifting toward the long end of the maturity spectrum, with around 30% more 30-year debt being issued this year than in 2009 and 50% less three-year debt issued this year than last, according to data provider Dealogic.

Only the strongest companies are able to issue century bonds--brands like Coca Cola Enterprises Inc . (CCE) that are expected to be around in 100 years time. While they may have to pay more than they do when selling 30-year debt, some of them are able to stomach that extra cost, especially if they are able to use the proceeds to buy back more expensive debt that they sold when rates were higher.

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Ragnarok's picture

Take out a large loan (knowing you have cashflow) and buy real world assets today knowing that you'll never have to pay that loan back in in real terms.  Brilliant!

Spigot's picture

Is it possible that this bond will be bought and then resold to the USFR as a stealth bailout??

assumptionblindness's picture

Maglev freight trains, bitchez!

umop episdn's picture

I'd like to say that hundred year notes are the very depth of stupidity, but I am sure that even stupider things have been done and it would harsh my

Eternal Student's picture

I'll have to respectfully disagree. I think they are brilliant.

But it all depends upon whether you are buying or selling. :)

Azannoth's picture

Some countries (ahhem Britain) has debt from the Napoleonic wars

InconvenientCounterParty's picture

God is listed as a counter party

TooBearish's picture

Pension fund bag job....bitchez?

Pladizow's picture

Do they come in Zero Coupon?

I'll buy some for retirement!?!?

Panafrican Funktron Robot's picture

What I don't understand is, why buy this over, say, something with a variable float above CPI or a Libor spread?  Are the 6 points really worth essentially stating "fuck it" regarding any inflation risk assessment?  Am I the only one that finds this massively retarded?  Or am I just pretty much way off and we're going to have multi-decade deflation?

KevinH's picture

I'm with you and would never buy this under any circumstances. What we have seen over the past century is that in the long run, price rises and there's inflation. With the massive liquidity injection by the Fed over the past years, the ultimate long term outcome is again, inflation and potentially hyperinflation. 

And suppose that deflation hits next year and the value of this bond rises, it's gonna be difficult to unload for a profit as well. 

Geoff-UK's picture

Are the 6 points worth it to an individual managing his own portfolio?  Hell no.


Are the 6 points worth it to a guy managing CA Pension fund (with hundreds of millions in assets) who has to show yield immediately to keep his job, and is already looking for a new job before the portfolio goes tits-up?  Hells yeah.

Verbal Kint's picture

It's actually a nice leveraged play on rates and inflation as long as you can get some liquidity when you're trying to unwind. Even though 100 year rates don't have to be correlated very highly with say 30 year rates, in theory, the fact that everyone will be hedging with the longest available rates product will force decent correlation.


Only problem: the 100 year cumulative default probability for Norfolk Southern is about 100%.

jm's picture

I appreciate this line of thought, but doesn't seem that there will be any liquidity here. 

theoakman's picture

yeah...only the strongest companies....Any company that strong wouldn't have to issue debt like that.

Careless Whisper's picture

was that guest i just saw on cnbc a tranny?  hmmm... maybe they trying to broaden their viewer appeal. good for them.

Cognitive Dissonance's picture

You get two demerits for watching CNBC but you earn 4 points for spotting the tranny. Was it a guest host or was Joe still hanging around the office?

Citxmech's picture

You just made me spit coffee through my nose.

HelluvaEngineer's picture

It's for the SEC / Fed employee demographic

I am a Man I am Forty's picture

Was listening to CNBC while I was working and looked up and said WTF?  Total dude.

Rusty_Shackleford's picture

Hey, that's not nice.

Sue Herera does the best she can with what she's got.

Madcow's picture

a long term, managed deflationary collapse ... a controlled implosion is a total fantasy. 

this is not Japan. we will not see slowly falling prices of goods and services within the context of an otherwise healthy and growing global economy.

'deflation' in the US would result in supply chains shutting down (at least those industries not taken over by the US Government). 

These long term bonds are the Old Maid card.  


The US financial system was designed to withstand deflation like a shark was designed to swim backwards.

MachoMan's picture

Probably, but that won't stop us from trying.  As small as our austerity's chances of success may be, there is universal agreement that keeping our feet in the printing gas (exponentially larger attempts) will result in a very quick demise.  See you in the food lines, hopefully our backs can withstand the whip.

BlackBeard's picture


Cyan Lite's picture

Consols, bitchez...

Vampyroteuthis infernalis's picture

Odds are this railroad won't even exist in 100 years under any circumstances. It is getting money handed to you (the railroad) at the rate of 6 % without having to pay back principle. Sounds like a good scam to me.

Rusty_Shackleford's picture

...and a light bulb lights up over my head!!!


I'm selling 250 year bonds tomorrow on myself at 30%.


Who's in?!!!!!!!!!

ColonelCooper's picture

HA!  I'll give 40% on 225 years.

Rusty_Shackleford's picture

It's a bidding war!


Markets will sky-rocket!!!

Why didn't we think of this before?

mark mchugh's picture

Oooh Oooh,

I'll sell default insurance policies for you guys, so people will know you're good for it!

Greenies Weenie's picture

You mean these things aren't any good?  I just bought a half dozen...

DarkAgeAhead's picture

Hah, this is kind of fascinating.

Somebody should put a big bet down at


Spigot's picture

Bond market disaster dead ahead...long maturity (anything over 30 yr) mortgages and/or bonds signaling imminent disaster.

This is going to be one fugly disaster-piece from my POV...

DarkAgeAhead's picture

You should put a bet / challenge down at

ZeroHedge should put together a bet and challenge Goldman Sacs et. al.  All proceeds go to charity.

exportbank's picture

Canada Pension Plan and The Caise will load up on these suckers for suckers  I'll assume Calpers won't be far behind. This is an "investment" designed for the pension crowd.

Miles Kendig's picture

Classic sign of the times

Reese Bobby's picture

HCA issued 100 year bonds that worked out great until the company was bought in an LBO. Of course the duration of a 100 year bond is only ~16 years so what could possibly go wrong?

anarkst's picture

Why not a 500 year bond?  Or maybe a millennial bond?  I'll pay 1% for the fist 500 years and then whatever you want! 

TraderTimm's picture

Regaining your investment is as likely as inventing a time machine, going back to 1945 and investing $100 dollars to collect on in 2010.

Wait a second, maybe that means the billionaires are all time-travelers. It all makes sense now...

The Franchise's picture

100 year bonds? I eat the shit.

I put mustard on it and eat the fuckin' shit.

Dr. Goose's picture

Said an analyst, mulling a deal, 
"Fixed income is losing appeal; 
If inflation would grow 
Then prices would go 
In the other direction from yield."

count_zero's picture

Calm down people. 100 year bond ~= preferred stock with a fixed dividend.

That said, only an idiot would buy it at 6%. Or someone with a strange liability.


Upon futher reading, at 5.75%, the duration close to that of 30 year bonds. The coupon is the majority of the return. It's a more pure interest/credit security that might reduce turnover for backing derivatives, but I know nothing of derivatives.

litoralkey's picture

Playing the contrarian to the ZH wisdom here:

The issuance of this bond offering can be justified by the imminent completion of Norfolk Southern's Heartland Corridor and Crescent Corridor routes.

As the price of petrol increases steadily over the next century, Heartland Southern will become the de facto monopoly transport network for an area spreading from Norfolk Virginia to New Orleans and Memphis along the Appalachian Mountains states, and from Norfolk to Chicago through the rust belt states.

For those who are inclined towards the "Peak Oil" theory, and who do believe the USA will not collapse in a bang, but instead fade away in a sustained whimper, these bonds could be justified to purchase.

On top of that, Norfolk Southern's continual existence is guaranteed, the corporation is a TBTF transport utility for National Security.  This public bond offering is being matched by over US$1.2Billion in government funding, tax breaks or tax abatements.

iPood's picture

What's the duration on these bonds? Interesting to compare the 75 bp premium of these over 30's to get a sense of the market's view of inflation for the excess duration.

Herry12's picture

Thanks for such a great post and the review, I am totally impressed! Keep stuff like this coming!...
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