Booming U.S. Junk Bond Market Sees First Pulled Deal Since July

(Bloomberg) -- Junk-rated companies are binging on debt like never before thanks to a pledge from the Federal Reserve to keep rates low and credit markets open. But not every borrower is welcome on board.

Aethon United BR LP, a Texas-based natural gas company, has postponed a $700 million high-yield bond sale that would have refinanced existing debt, according to people with knowledge of the matter who asked not to be identified because the details are private.

The deal is the first to be yanked from the U.S. high-yield bond market since July, when Diamond Resorts pulled a $525 million offering, according to data compiled by Bloomberg.

While the tone in the market for corporate debt has softened in recent days, issuance of junk-rated securities is on track to break an all-time record on Wednesday. Even some of the companies most severely impacted by business disruptions caused by Covid-19 have been able to tap debt markets to refinance maturing obligations or add cash to their balance sheets.

Read more: Junk bond issuance to hit all-time high amid refinancing wave

Aethon didn’t respond to requests for comment. A representative for JPMorgan Chase & Co., the lead arranger of the bond offering, declined to comment.

The company had been sounding out potential investors for the five-year bond sale at a yield in the high 8% to 9% range and originally expected to price the transaction on Sept. 17, according to the people. It planned to use proceeds to repay an existing second-lien loan and borrowing under its revolver.

Credit rating firms had rated the proposed bond in the single-B tier, the middle level of junk. Aethon is expected to burn cash through 2021 as it invests in growing production, according to Fitch Ratings.

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