Blue Chip Borrowers Rush to Lock In Low Rates

New debt sales from blue-chip companies are poised to reach a record for annual issuance this week as more opportunistic borrowers lock in some of the lowest borrowing costs in history. Meanwhile, high-yield supply may slow to a trickle.

Investment-grade syndicate desks are anticipating about $30 billion in new bond sales for the week, which would push total volume for the year past the current supply record of $1.3 trillion for all of 2017. Supply could reach $1.9 trillion by the end of the year, according to Monica Erickson, head of investment-grade corporates at Doubleline Group LP.

Apple Inc. led other high-quality companies in borrowing $48.8 billion last week, easily surpassing the top projection for $35 billion. Risk premiums on U.S. investment-grade corporate bonds have tightened substantially to early March levels and yields are flirting with the lowest levels in history, according to Bloomberg Barclays index data.

Investors looking to add value to their portfolios have to continue to “pick through some of the sectors that are more challenged” amid the coronavirus pandemic, like travel and airlines, according to Lisa Coleman, global head of credit at J.P. Morgan Asset Management. The firm, overseeing $2.2 trillion in assets as of end of June, has “tilted into the BBB space over the past several months” and has also been snapping up subordinated financial credit from European and U.S. banks.

“There are some interesting opportunities in issuers with very wide spreads that are definitely more high-yield like,” said Coleman in an interview last week.

Junk Deals

The pace in the high-yield market is poised to slow after the second-busiest week ever for volume. That may take some pressure off spreads, which have started to edge wider amid the onslaught of deals.

August issuance has topped $40 billion, sending the year-to-date total to almost $280 billion, exceeding the sum of cash raised during 2019, according to data compiled by Bloomberg.

Quality companies have borrowed at “shockingly” low yields, Citigroup Inc. analyst Michael Anderson wrote in a note Thursday. But some of those with the lowest coupons, including Ball Corp.’s $1.3 billion of 10-year notes that priced at a yield of just 2.875% -- the lowest on record for a junk bond with a tenor of five years or longer -- dipped in secondary trading.

In leveraged loans, commitments are due on six deals, including a $1.3 billion DIP term loan for Avianca Holdings SA, and a $2.4 billion loan that will partly help fund Liberty Global’s acquisition of Sunrise Communications AG. Additionally, Asplundh Tree Expert’s $2 billion loan that will fund a dividend is also expected to price.

Coronavirus Woes

In distressed world, a physician staffing company backed by KKR, Envision Healthcare Corp., has a call on Tuesday morning to discuss earnings, according to people familiar with the matter. Forced to cut pay and ditch elective surgeries as patients avoid hospitals, Envision has avoided bankruptcy with support from government aid and by working out a debt deal with its creditors.

Stein Mart Inc. became the latest old-line retailer to succumb to a tumultuous retail environment amid the pandemic when the department-store chain filed for bankruptcy and may close all of its stores. Seven U.S. companies with liabilities over $50 million filed through August 10, in line with the Covid-era average of six bankruptcies a week, data compiled by Bloomberg show.

©2020 Bloomberg L.P.

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