Junk-Bond Sellers Desperate for Funding Swallow Yields Over 10%

(Bloomberg) -- U.S. companies hardest-hit by the coronavirus pandemic are continuing to tap the junk bond market, even if it comes at a double-digit cost.

Rental car company Avis Budget Group Inc. sold $500 million of bonds to yield 11.297%. Norwegian Cruise Line Holdings Ltd. is borrowing $600 million of four-year secured notes, which will pledge islands and ships as collateral and may come at a roughly 13% yield, according to people with knowledge of the matter.

The bond sales come as more companies emerge from earnings and look to shore up liquidity through global lockdowns that have rendered their businesses largely useless for the time being. Avis expects to burn through $800 million of cash this quarter, while Norwegian included “going concern” language in its annual report, saying it will need additional financing to meet obligations over the next 12 months.

Investors have thrown money at other recent high-yielding offerings like those from Carnival Corp. and AMC Entertainment Holdings Inc. that have come to the debt markets in search of lifelines. Junk bond funds have taken in billions of dollars in recent weeks in a sign of resurgent risk appetite.

In Europe, companies like Royal Dutch Shell Plc and Danske Bank A/S flocked to the market for new debt, with a profit warning from French bank BNP Paribas SA highlighting the need to hoard cash in the face of the pandemic. The region saw its first junk-rated corporate deal in nearly two weeks.

U.S.

Avis boosted the size of its offering to $500 million from $400 million, even as peer Hertz narrowly averted a bankruptcy filing. Norwegian is also raising cash through an offering of shares and convertible bonds, as well as a private investment.

  • The investment-grade market was also active, with Broadcom leading a list of nine deals expected to price
  • For deal updates, click here for the New Issue Monitor
  • Hotel chain Marriott International has canceled a $1.5 billion revolving facility it obtained last month after it lined up funds from a recent bond sale and credit card deals
  • Neiman Marcus is closing in on a deal with lenders led by Pimco that would slash the department-store chain’s debt load by more than half in exchange for control of the company, according to people with knowledge of the matter

Europe

Daily issuance volumes reached around 10 billion euros, more than the last three days combined. Danske Bank offered euro senior preferred notes, after its national regulator eased bail-in rules due to the pandemic.

  • Europe’s junk bond market also saw some action, with Stada Arzneimittel’s Nidda Healthcare Holding GmbH selling 200 million euros of notes at a 3.5% coupon
  • Cost of insuring European investment-grade corporate debt rose almost 2bps to ~86.4bps as the German constitutional court partly dismissed a case against the legality of ECB QE but ruled that some actions are unconstitutional
  • BNP Paribas also announced plans to sell 17 billion euros of Additional Tier 1, Tier 2 and senior non-preferred debt this year
  • German airline Deutsche Lufthansa AG is set to provide investors with an update on its strategy for weathering the pandemic later today, as it continues to seek a multi-billion euro government bailout

Asia

Issuance activity continued to pick up, with CK Hutchison Holdings Ltd. joining Bank Mandiri in marketing dollar bond offerings on Tuesday. State-owned mining company PT Indonesia Asahan Aluminium is also mulling a deal.

  • More emerging market sovereigns and companies have turned to debt markets to build out cash buffers, as they face considerable challenges from the economic impact of the coronavirus. Data Tuesday showed that Indonesia’s economic growth slowed to the weakest since 2005 in the first quarter
  • Qantas Airways Ltd. raised an additional A$550 million ($355 million) in funds to weather the coronavirus crisis as it extended international flight cancellations until the end of July

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