Bond Buyers Embrace 72-Hour, 52-Deal Corporate Borrowing Binge

Bookmark

Corporate America’s unprecedented issuance spree showed no signs of slowing Thursday amid what bankers and borrowers say are ideal conditions for high-grade companies to tap the bond market for financing.

After a relatively slow August even by Wall Street standards, issuers are back in force. They’re taking advantage of pent-up investor demand for high-quality credits, and looking to lock in their funding needs for the year amid concern that the Federal Reserve will soon begin to pull back stimulus that’s helped push interest rates to near-record lows. 

While the week after Labor Day is normally one of the busiest of the year in debt capital markets, the past three sessions have been among the most active ever. Another 14 blue chip companies sold $15.65 billion of bonds Thursday, after 38 firms priced more than $60 billion over the previous two sessions.

“Companies want to issue and lock in this low financing now, and not take any chances on the Fed,” said Matt Brill, head of U.S. investment-grade credit at Invesco Ltd. “And buyers have not been scared at all. We have not seen spreads back up or any deals struggle to get done.”

For more on the September debt deluge

Companies are taking advantage of an attractive funding environment that some see receding should Fed officials begin to tighten monetary policy in the coming months. Many are looking to lock in cheap funding costs and improve their balance sheets via refinancings while they still can.

While heavy supply over short periods can tend to weigh on credit spreads if investors start getting pickier, that hasn’t been the case so far this week. Deal execution has been orderly, and Wednesday’s slate of sales saw order books three times covered on average. The spread on the Bloomberg U.S. Corporate Investment-Grade Bond Index hasn’t budged this week, sitting at just 88 basis points. 

“Us investors are saying ‘Hey, keeping bringing more. We’re not getting enough bonds,’” Brill added, noting that the lack of supply over the last half of August meant a lot of dry powder was ready to pounce on new issues. 

Much of the new supply this week has been focused on balance sheet management, with relatively few M&A-focused transactions. 

Several deals -- including Walmart Inc.’s $7 billion sale Wednesday -- are earmarked to fund tender offers, a sign that low rates are one of the main motivators. The 10-year Treasury yield has trended higher in recent weeks, sitting at about 1.3% Thursday after falling as low as 1.13% in early August. That’s a possible wakeup call for investors that debt is going to get more expensive. 

Elsewhere in credit markets:

U.S.

At least 14 lender meetings are on deck Thursday in the leveraged loan market, with the bulk of activity driven by borrowers looking to sell debt to finance buyouts and acquisitions.

  • An “abnormally low” spot spread differential between Libor and SOFR may be obstructing the adoption of replacement rates in the loan market, according to the Loan Syndications and Trading Association
  • Walmart’s new investment-grade bonds rallied in secondary markets Thursday, a day after the debt offering received as much as $25 billion in demand
  • Janus Henderson is launching two actively managed fixed-income ETFs that integrate sustainable investing criteria
  • ABC Carpet & Home, the more than a century-old New York luxury home goods retailer, filed for bankruptcy late Wednesday after the pandemic and a delayed renovation upended its business.

Europe

There are seven issuers selling at least 3.27 billion euros-equivalent of bonds on Thursday.

  • U.K. specialist insurer Just Group Plc is on track to cut its interest costs by replacing a bond issued in only 2019, extending a run of similar transactions as companies take advantage of the collapse in yields
  • Nearly 80% of European credit investors would be willing to pay a premium for a sustainability-linked bond where the key performance indicators used are “material” to the issuer
  • Risk premiums and yields near record lows have pushed money managers with a mandate to buy European high-grade debt into buying lower-rated bonds.

Asia

Regulators in Beijing have signed off on a China Evergrande Group proposal to renegotiate payment deadlines with banks and other creditors, paving the way for a temporary reprieve. 

  • Bonds from at least 99 Chinese companies totaling $84.6 billion face repayment pressure, according to company and ratings firm statements compiled by Bloomberg
  • Eight banks have joined to underwrite private equity firm Baring’s roughly $550 million five-year loan to purchase healthcare services unit from Hinduja

©2021 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.