U.S. Junk-Bond Sales Break Record for Busiest Quarter Ever

U.S. high-yield debt sales set a new quarterly record as companies take advantage of low funding costs before potential inflation causes rates to rise further.

Carvana Co. launched $600 million of notes Thursday, which pushed issuance over the mark to $139.6 billion for the first quarter. That surpasses the previous high of about $139 billion set in the second quarter of 2020, when businesses rushed to raise liquidity at the start of the Covid-19 pandemic, data compiled by Bloomberg show. MGM China Holdings Ltd., Interior Logic Group -- issuing through Signal Parent Inc. -- and Dycom Industries Inc. set sizes for their deals earlier in the day to help drive volume past the record.

Junk-rated companies have tapped the market relentlessly this year, extending 2020’s record pace as yields have stayed relatively low, at least for now. A $1.9 trillion debt-funded stimulus package and inflation expectations have been pushing Treasury yields higher, encouraging corporations to take advantage of borrowing conditions that are still attractive.

Risky borrowers, including those such as retailer Neiman Marcus Holding Co. Inc. that only recently emerged from bankruptcy, have tapped the market, while there’s also been a pick-up in leveraged buyout funding after a swath of refinancings this year. Ingram Micro Inc. is in the market with a $2 billion offering to support its acquisition by Platinum Equity, following similar deals from Triton Water Holdings Inc. and Interior Logic Group.

“It’s really hard to keep up with the issuance,” said Kevin Loome, portfolio manager of the U.S. high yield fund at T. Rowe Price. “Now the pendulum is shifting a little bit toward more aggressive behaviors.”

U.S. Junk-Bond Sales Break Record for Busiest Quarter Ever

Companies have been issuing debt at a rampant pace all year with supply setting new high marks in January, February and March. In 2020, annual sales zoomed past the previous record by over $100 billion, ending at nearly $432 billion.

With the Federal Reserve and central banks globally keeping rates low, investors have sought out U.S. junk bonds for higher returns, which pushed average yields below 4% for the first time ever in February. Although they’re back up to 4.34% now, mostly thanks to the selloff in Treasuries, that’s still well below the 10-year average of 6.4%.

That strong demand has allowed jumbo deals to easily clear syndication and pad issuance volume. American Airlines Group Inc. sold $10 billion this month as part of a joint bond-and-loan package in the biggest ever airline debt sale. T-Mobile US Inc. issued $3.8 billion to help finance the purchase of 5G airwaves, an expenditure that’s also propelled a rush of borrowing in the investment-grade market.

There have also been at least two dozen inaugural junk-bond issuers to come forward this year, contributing about $13 billion of supply, according to data compiled by Bloomberg. Pandemic stock darlings Crocs Inc., the colorful clog maker made cool again thanks to Justin Bieber and Bad Bunny, and cloud-based software company Twilio Inc. seized on their equity valuations to sell their first bonds.

As so many companies have pulled forward financing needs, it’s hard to imagine the issuance party going on forever. A slowdown could be coming as the market itself will eventually push back, Loome said.

“It’s almost like an indigestion problem, and we’re getting to that point,” he said.

U.S.

MGM China Holdings, Dycom Industries, Oasis Midstream and Interior Logic Group are also in the high-yield pipeline and slated to sell notes Thursday. Meanwhile four other borrowers are in the market with debt deals that may wrap up before the end of the month.

  • London Stock Exchange Group Plc is tapping the U.S. high-grade bond market to help refinance debt it took on related to its acquisition of Refinitiv Holdings Ltd.
  • Green bonds. Blue bonds. Brown bonds. Environmentally-conscious investors may soon be able to buy a different color of asset every day of the week
  • For deal updates, click here for the New Issue Monitor
  • For more, click here for the Credit Daybook Americas

Europe

There are at least 14 deals in European primary markets on Thursday, including Advanz Pharma and utilities supplier E.ON, which is issuing an euro-benchmark green bond.

  • A “meaningful acceleration” in the EU’s vaccine program is needed to kick start corporate rating upgrades in Europe, according to Bank of America strategists
  • Former British Prime Minister David Cameron is under investigation by the Office of the Register of Consultant Lobbyists for possible unregistered consultant lobbying on behalf of Greensill Capital, according to the Daily Telegraph

Asia

Firms in India rush to issue bonds in rupees before the end of the fiscal year on March 31, with at least seven borrowers seeking bids for deals on Thursday.

  • The Philippines is marketing a yen bond, in what would be the sovereign’s first Samurai issuance since August 2019
  • China’s central bank asked lenders to keep loan growth stable and reasonable, with increased support to house leasing, innovative technology and the manufacturing sector

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