(Bloomberg) -- The European bond market is the latest to get pushed aside by the boom in U.S. high-yield debt.
This year’s largest buyout financing, the $10 billion cross-border deal for the car-battery unit of Johnson Controls International Plc, will be dominated by U.S. dollar junk bonds. European investors had anticipated a bigger share would be issued in the euro market than the planned $750 million-equivalent of senior secured bonds. Bankers finalizing the capital structure of Power Solutions are now raising approximately $4 billion from American bond investors.
The U.S. bond sale will be split between $2 billion of secured notes and $1.95 billion of unsecured ones. The loan portion of the deal had already been pared back to $5.45 billion in favor of more bonds last week with $3.2 billion to be sold in the U.S. and a $2.25 billion-equivalent issue in Europe.
While both markets have roared back following December’s sell-off, the U.S. rebound has been more ferocious. U.S. junk bonds have returned 6.33 percent this year, outpacing Europe’s 4.77 percent. American high-yield bond funds have received about $10.6 billion of new money versus 1.4 billion euro ($1.6 billion) of inflows for European funds in 2019, according to Lipper and JPMorgan Chase & Co. data.
The European high-yield market may also be less attractive for issuers because of a dearth of deals. Initial price talk on the euro notes are in the low 5 percent yield area. There have been only seen six new issues so far this year, and mostly from the highest-rated junk credits.
Banks Are Said to Market Riskier Power Solutions Debt at 9% Area
Appetite for more complex or subordinated debt has yet to be tested amid lingering investor caution due to a range of concerns following last year’s volatility. And Power Solutions -- which is being bought out by Brookfield Asset Management Inc. and Caisse de Depot et Placement du Quebec -- apparently won’t be the one to do it.
The meetings for the euro notes will be kicked off on Wednesday, while the U.S. roadshow will begin March 11.
©2019 Bloomberg L.P.