U.S. companies are turning more to the bond market to fundexpansions than at any time since 2008, a sign businesses arefinally showing some confidence in the economy after hoarding cashfor the past five years.

Of the $1.27 trillion of investment-grade bonds issued in thefirst nine months of the year, companies such as AmericanTransmission Systems Co. and CF Industries Holdings Inc. earmarkedas much as 16 percent for capital spending, according to datacompiled by Moody's Analytics and Bloomberg. That compares with 9percent during the same period in 2013. Companies have invested$900 billion in their businesses this year, a 52 percent increasefrom 2009, Moody's data show.

Corporate executives are providing one of the most bullishsignals yet that growth in the world's biggest economy can besustained. That's in contrast to the first years after thefinancial crisis, when the vast majority of offerings went torefinance existing obligations as the Federal Reserve'sunprecedented stimulus efforts pushed borrowing costs to recordlows.

“Animal spirits are finally coming back to life,” said MarkZandi, chief economist for Moody's Analytics. “Businesses have beenreticent to take a chance.”

For the second straight quarter, non-financial companies in theU.S. are spending more on new projects than they're generating fromearnings, according to Standard & Poor's. That leaves themfunding the gap by tapping debt markets, S&P analyst DianeVazza wrote in an Oct. 30 report.

“Our dialogue with corporate clients around capex is as robustas it's ever been,” said Amery Dunn, the New York-based managingdirector of U.S. debt capital markets at Royal Bank of Canada.“There's an uptick in confidence and companies are feeling betteras we get further and further away from the crisis.”

An index that Zandi created to gauge the morale of companyexecutives is close to the highest level since the start of 2003.Manufacturing growth based on the Institute for Supply Management'sfactory index expanded at a faster pace last month to match Augustas the highest since March 2011, the Tempe, Arizona-based ISM saidin a report yesterday.

Building Plants

American Transmission Systems, which said in a 2014 report thatit expects to make as much as $3.9 billion of improvements to itselectrical grid during the next 10 years, issued $400 million ofbonds last month for capital expenditures, Bloomberg data show.Anne Spaltholz, a spokeswoman for the Pewaukee, Wisconsin-basedcompany, didn't respond to telephone messages seeking comment.

CF Industries, a 68-year-old company that uses natural gas tocreate nitrogen plant fertilizers, doubled its debt load by issuing$1.5 billion of bonds in March to help fund its biggest expansionever.

With natural-gas prices declining during the last several yearsamid the U.S. shale boom, the Deerfield, Illinois-based companyembarked on a $3.8 billion plan to expand fertilizer production,including a $1.7 billion plant in Iowa, said Dennis Kelleher, thecompany's chief financial officer.

“We can run those plants flat out” with natural gas prices solow, Kelleher said in a telephone interview. While the companydoesn't have plans for more debt offerings in the near future, “itwouldn't be surprising if we took a look at debt capacity” onceearnings start to climb, he said.

U.S. companies are coming into this shift with some of thestrongest balance sheets in decades after taking advantage ofrecord-low borrowing costs. Average corporate-bond yields of 3.8percent are below the 10-year average of 5.62 percent and down fromas high as 11.1 percent at the peak of the crisis in 2008,according to the Bank of America Merrill Lynch U.S. Corporate &High Yield Index.

Companies in the S&P 500 Index have about the lowest netdebt to earnings ratio in at least 24 years and record earnings pershare, Bloomberg data show. They are headed this year toward thefastest average monthly job creation since 1999, a recovery thatstands in contrast to Europe and Asia.

Even as investment-grade companies are increasing theirborrowing for capital projects, speculative-rated firms have kepttheir share of bond deals for capital expenditures steady at about15 percent, according to Moody's Analytics data. Instead, they'velargely been pursuing shareholder friendly activities funded bydebt, according to an Oct. 28 Moody's Investors Service report.

Waste Investments

“It's not clear at this point if this is a meaningful inflectionpoint yet,” Ward McCarthy, chief financial economist at JefferiesLLC, said in a telephone interview.

Quasar Energy Group, a closely held company in Cleveland thatbuilds and operates projects that reduce the cost of wastedisposal, is boosting its direct investment to about $250 millionthrough 2020 from about $70 million on projects to date, predictingit will win about $1 billion of work during the period.

Municipalities had stopped investing in wastewater upgrades andexpansions during the recession, creating “a market that is cryingout for help,” said Chief Financial Officer Steve Smith. Quasaruses microorganisms to break down waste while producing biogasthat's turned into energy.

“The rubber is starting to hit the road,” Atul Lele, chiefinvestment officer of Deltec Bank & Trust Ltd., said in atelephone interview. “This is the single most bullish part of theU.S. economy over the next year.”

Bloomberg News

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