Calgary Alberta - Unless there are some dramatic medical discoveries in the next few decades there is virtually no chance that anybody who is reading this item will be around in 100 years, which is when a US$ debt offering by Canadian Pacific Railway Company is set to mature.
 
This week the subsidiary of publicly listed Canadian Pacific Railway Limited brought to market a two-part offering that raised US$1.2 billion.
 
(The original plan was to raise debt capital in three tranches.)
 
One of the tranches had a 20-year term and raised US$300 million at a coupon of 4.80 percent.
 
There is a fair chance that many of the readers will still be around when that offering matures in mid-September 2035.
 
In the other tranche, CPR raised US$900 million at a coupon of 6.125 percent and a maturity date of mid-September 2115.
 
CP said that it planned to use the proceeds for "general corporate purposes, including, primarily, the reduction and refinancing of short term and long-term indebtedness."
 
Why issue for such a long term?
 
One reason is the length of the maturity and the rate that the BBB+ rated issuer is required to pay.
 
Some investors, especially pension funds are on the lookout for long-term investments given that it allows them to match their liabilities.
 
(Those liabilities are increasing faster than otherwise because rates are staying lower for longer periods of time.)
 
While inflation is low at the moment, it may not always be the case.
 
In Canada there have been a number of cases of issuers (one of which was the Province of Nova Scotia) issuing 50-year bonds that are snapped up by pension funds.
 
In April 2014, the federal government joined the party when it raised $1.5 million at a coupon of 2.75 percent and a maturity date of December 2064.
 
(The original plan was to raise $750 million.)
 
A few months later Ottawa followed up with another 50-year offering that raised $1 billion.
 
Last November it placed another $1 billion of 50-year bonds.
 
In the late 1990s and in the early 2000s at least nine U.S. companies, including two rail companies (Norfolk southern and Burlington Northern Sante Fe Corp.), have issued 100 year bonds.
 
Barry Critchley.