European Junk Bond Sales Crank Up After ECB Confidence Booster

(Bloomberg) -- High-yield bankers in Europe aren’t heading for the beach yet with expectations of central bank stimulus reinvigorating the market for opportunistic bond sales.

At 8.0 billion euros equivalent ($8.9 billion), supply this month looks set to be the busiest since May and the most active July since 2015, according to data compiled by Bloomberg. Intrum AB, Sirius Minerals Plc, Vivion Investments Sarl and Oriflame Holding AG are among the companies marketing new debt sales this week, which are expected to total about 2.3 billion euros.

“The high-yield primary market activity has been busier than one might expect seasonally,” said Fraser Lundie, co-head of credit at Hermes Investment Management, which manages 34.1 billion pounds of assets. “We think that the opportunistic position taken by corporates choosing to tap the market should be mirrored by investors.”

The surge of new supply will boost annual issuance volumes that are lagging last year’s levels by about 20%, the data show. Borrowers were sidelined earlier in the year following a late-2018 selloff that sent yields to their highest in more than two years. Now they’re playing catch-up as talk of further stimulus measures gathers steam.

Read More: Citi Says Rate Cuts May Fuel Market Frothiness and Currency Wars

Yield Hunt

Most of the high-yield deals this year have been in the highest speculative-grade rating bracket in response to investors maintaining a cautious approach to buying or pricing risk.

But as the global bond rally fuels an ever increasing yield grab, more companies rated further down the rating scale are seizing their moment. This week’s transactions are dominated by riskier single-B issuers, including Sirius Minerals, Oriflame and Cirsa Finance International Sarl.

Investors appetite has its limits, however. Appliance warranty provider Domestic & General last week had to increase the price on a subordinated tranche to 10% to secure financing, while Ithaca Energy (North Sea) Plc made a host of investor friendly changes to its terms. Both transactions were rated single B.

“Having the flexibility to invest from a global perspective is a benefit as such times in order to avoid forced or indiscriminate buying,” Hermes’ Lundie said.

To contact the reporter on this story: Laura Benitez in London at lbenitez1@bloomberg.net

To contact the editors responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net, Charles Daly

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