As Junk Bond Sales Near Record, Dealmakers Crave a Summer Break

(Bloomberg) -- The customary summer slowdown couldn’t come sooner for the participants in Europe’s debt market after an intense 18 months of deals and travel bans kept them tied to their desks.

Junk debt sales for the year to date are already close to surpassing 2020’s record amount -- and the deals keep on coming. Investment grade issuance has slowed from the ferocious levels of debt-raising when the pandemic first struck, but activity throughout 2021 remained brisk right up until this week. September is looking no less busy.

Some are simply downing tools in an effort to get some rest.

“With the record amounts of deals this year fund managers are in need of a holiday,” said Uli Gerhard senior portfolio manager at Insight Investment Management. “The lack of staff and manpower is hindering the ability of teams to look at new deals at the moment, so naturally the market will be less active from here on in.”

A sure sign that investors are taking a break from their screens was the decision to postpone Thursday’s sterling transaction for Berkshire Hathaway’s Northern Powergrid (Northeast). The lead managers advised the market that the company was looking forward to re-engaging with investors after the summer.

Investment grade issuance stands at 981 billion euros ($1.15 trillion) year to date, just over 12% shy of last year at this point. Meanwhile, over 86.6 billion euros of junk corporate bonds have priced in 2021, around 2 billion euros short of 2020’s full year figure.

Read more: Europe’s Breakneck LevFin Market Needs a Summer Holiday

Some market players are soldiering on, arguing that there is too much uncertainty and too much going on in markets to take a break.

“The reflation trade is just too stuffed thanks to the Fed, delta variant, U.S. fiscal hopes, travel bans,” said Mark Nash, head of fixed income alternatives at Jupiter Asset Management.

An increased number of M&A transactions may still leave bankers stuck indoors as they come to the leveraged finance market for cash.

“With a strong pipeline in September, I can see people working through August,” said Jonathan Brownson, partner in Cahill Gordon and Reindel’s LLP’s capital markets and lending group.

“Some people would like a break but they’ll probably get less of a break just because it’s such a strong market,” he added. “I think people will do the deals that are in front of them.”

Europe

There’s little activity in Europe’s primary credit market, which is on track for its lowest weekly volume of the year.

• In the high yield space, Belgium’s Ideal Standard is marketing 350 million euros of five-year notes that have a call option after two years, while Ithaca Energy (North Sea) is closing European books on a $625 million deal of similar notes
• French automotive supplier Valeo, an investment grade issuer at Moody’s and high yield at S&P, hired banks to arrange investor calls about a debut euro sustainability-linked bond
• The European Central Bank’s tweaked policy didn’t bring fireworks but still underscored its commitment to low rates and bond purchases. This could prove enough to drive a disconnect between major credit markets, giving the euro area an edge
• Euro-denominated issuance from emerging-market sovereigns jumped to 7.75 billion euros this month, a record for July
• Investors rushing to secure a stake in PizzaExpress have pushed its value up almost 50% in a week, as the mid-market restaurant chain emerges from a bruising restructuring and the lifting of Covid restrictions

Asia

New issuance in Asia’s dollar debt market quickened this week, fueled by a slew of green bond sales despite concerns about the health of China’s most indebted property developer Evergrande.

• Corporate bond sales in the U.S. currency from Asia excluding Japan rose to $8.9 billion this week from $6.3 billion last week, according to data compiled by Bloomberg
• Demand for ESG notes remains strong, with Ping An Real Estate receiving more than $1.8 billion of orders for its $600 million dual-tranche green notes
• Surging global demand for ESG investments will help borrowers cut financing costs, according to the CEO of a Malaysian bank that’s offering a rare sustainability note
• A little-known property company has been adding to its money-losing wager on Evergrande, amassing bond holdings with a face value of $1 billion despite growing fears of a default

U.S.

The U.S. primary investment grade market was quiet on Thursday. In high yield, DirecTV and McLaren each priced offerings at the tight end of talk while raking in enough orders to cover their deals by multiple times.

• There are early signs that investors in leveraged loans, a roughly $1.4 trillion industry that fuels M&A including buyouts by private equity firms, are embracing technology, or at least are open to the possibility
• For deal updates, click here for the New Issue Monitor
• For more, click here for the Credit Daybook Americas

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