The Late-Year Corporate Bond Blitz Is Finally Set to Abate

(Bloomberg) -- Corporate debt sales are finally expected to cool next week due to a typical year-end slowdown, though cheap borrowing costs may be too tempting to bring a complete freeze.

Wall Street syndicate desks are projecting a trickle of about $5 billion of high-grade bond issuance after volume surprised to the upside this week, topping $20 billion. Banks, which tend to sell debt when credit markets are especially borrower friendly, have made up about 75% of this month’s supply -- and it wouldn’t be surprising to see a few financial deals emerge in the coming days.

Companies may also continue to capitalize on rock-bottom yields to whittle away at their debt piles. CVS Health Corp. sold $2 billion of investment-grade bonds this week to fund a tender offer for more expensive outstanding obligations, while high-yield issuer Occidental Petroleum Corp. also priced a similar amount of notes for the same purpose.

“The president-elect and promising news on vaccines are helping drive risk sentiment in a positive direction, and with that, the tone in the corporate credit market has followed suit,” said Jon Curran, senior investment manager at Aberdeen Standard Investments. “The trading activity you’re seeing now is due to anticipated drying up of liquidity in a few weeks’ time.”

Read more: AT&T, CVS tackle debt loads as corporates switch to deleveraging

Still, after a record-breaking year of issuance, the approaching holidays should mean activity slows. “We could still do a couple of deals come next week, and I really don’t think we’ll see anything the week of Christmas,” said Erin Lyons, co-head of U.S. investment-grade research at CreditSights. “Everyone’s ready to call it.”

After more than $13 billion of junk bonds were sold this week, high yield appears ready to take a breather as well. But with yields still near record lows, and anything from previously withdrawn deals to risky debt with ratings in the riskiest CCC tier getting snapped up by investors, new bond sales can’t be ruled out. E.W. Scripps Co. may come forward, with S&P Global Ratings already grading a future transaction comprised of $700 million senior secured and $500 million unsecured offerings.

The leveraged loan market has been just as hot, dominated by buyout financings where private equity firms have been able to slash borrowing costs. There are no bank meetings scheduled, but about 20 offerings are set to price with refinancing deals from Energizer Holdings Inc. and Asurion LLC among those expected to wrap, as well as Scripps’ loan to fund its acquisition of ION Media.

In the distressed debt space, several companies have significant dates approaching including Transocean Inc., which has a bond payment due. Ferrellgas Partners LP, which is planning to place some of its units in bankruptcy, also has a debt payment deadline in the coming days. New York Sports Clubs owner Town Sports International Holdings Inc. has a hearing in its bankruptcy restructuring next week.

Finally, the U.S. Federal Open Market Committee starts a two-day meeting on Tuesday to discuss next steps for monetary policy. Market participants will also be watching bipartisan talks on a pandemic relief bill in Congress. Negotiations have hit a snag just as the coronavirus infects Americans at a terrifying pace.

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