Courtesy of Reuters, a new milestone for junk debt issuance:
The volume of global high yield corporate debt topped $300 billion this week, shattering the all-time annual record for high yield bonds set in 2006 ($185.0 billion). Bolstered by triple-digit growth in the industrials and energy & power sectors, issuance during the fourth quarter of 2010 totals $90.4 billion from 186 deals, the biggest quarter, by proceeds raised and number of deals, since records began in 1985.
US-dollar denominated high yield issuance totals $250.7 billion for year-to-date 2010, up 84% over 2009 totals. Euro- denominated high yield totals $47.1 billion, an increase of 80% over 2009.
We have little to add that we haven’t said before about the boom in junk debt – but the scale of today’s volume figures is startling nonetheless.
The period of low interest rates has helped struggling companies (or the private equity funds that own them) buy time by making it easier for them to refinance. That’s better than if companies were mostly using cheap debt to simply juice returns. It’s also true that default rates have remained extremely low.
But either way it can’t last forever, and with signs that it’s no longer cheap, buyers of this debt should obviously be worried about what happens when rates go up.
As well as, of course, watching out for the debt of “zombie” companies for whom the day of reckoning has merely been postponed.
Related links:
The high yield one way ride – EconomPic Data
HY default rates drop again – FT Alphaville
Junk windfall – FT Alphaville
All junk, all the time – FT Alphaville
And the junk bond rally sailed on – FT Alphaville