Calgary Alberta - Canadian Pacific Railway Ltd. is tapping the U.S. investment-grade bond market to help fund its acquisition of Kansas City Southern.
 
The Calgary-based railroad operator is selling bonds in five parts, according to a person familiar with the matter.
 
The longest portion of the offering, a 30 year security, may yield around 140 basis points above Treasuries, said the person, who asked not to be identified as the details are private.
 
CP won a buyout war for KCS in September, agreeing to acquire the U.S.-based railroad in a US$27 billion cash and stock transaction that will create the first railroad to operate in the U.S., Canada, and Mexico.
 
Both companies are scheduled hold shareholder meetings to vote on the merger agreement in early December.
 
The yield on the Bloomberg high-grade bond index rose to 2.33 percent Tuesday.
 
While that's the highest since June 2020, it's still around 70 basis points lower than the five year average.
 
"It appears that market timing works well for them because current level of rates and tight spreads will keep their cost of capital quite low. CP needs to raise money to pay the KCS shareholders as soon as possible," said Imran Chaudhry, senior portfolio manager for fixed income at Fiera Capital.
 
Bank of Montreal and Goldman Sachs Group Inc. are managing the sale, the person said.
 
The company also plans to issue bonds in Canadian dollars according to a investor presentation.
 
Jack Pitcher and Esteban Duarte.