Posts tagged 'Corporate Bonds'

Was Verizon paying the price for Apple?

Or simply giving money away?

There was much hoopla late on Wednesday as Verizon got the world’s largest corporate bond sale away — some $49bn of paper which will help to buy the rump of Verizon Wireless back from Vodafone.

Here’s a little table from Marc Ostwald of Monument Securities that hints at the excessive premium offered by Verizon, along with the instant profits on offer to investors here: Read more

Digging into dealer inventories

There’s an oft-quoted number in the debate raging over liquidity in the bond market.*

It is, depending on the week, 75-78 per cent — the amount by which dealer banks’ inventories of corporate bonds are said to have declined since their peak of $235bn in 2007, according to Federal Reserve dataRead more

The zombie credit mispricing

Take note of the following story from IFR. It could turn out to be very important:

Jan 4 (IFR) – The yield-to-worst in the high-yield market dipped to its lowest level ever this week, as risk markets rallied on the fiscal cliff agreement. Dropping below 6% for the first time in history, the yield to worst on the Barclays high-yield index fell to 5.96% on Wednesday and pushed even lower to 5.90% on Thursday. This compares to 6.13% on Monday and 8.14% at the start of 2012. Read more

Mind the rate risk

Central banks have kept rates ultra-low since the financial crisis, trying to stimulate economic growth. Whether one regards this as successful or not, one can agree that it has costs. A line item with a particularly nasty looking question mark above it is a corporate bond bubble. Read more

Amazon borrows cheap money because, we guess, money is cheap to borrow (and easy to spend)

From the FT’s Barney Jopson and Vivianne Rodrigues:

Amazon was set to issue a bond for the first time in more than a decade on Monday, taking advantage of rock-bottom borrowing costs as it continues an investment drive that is withering its profits.

 Read more

The S&P downgrade ratio in Europe – 4:1

More euro gloom.

From S&P ‘s Global Fixed Income research team on Tuesday, “Europe’s Sovereign Crisis Continues To Erode Credit Quality.” Read more

“Moving out the risk curve”

A safe assets-themed argument in three charts, from Barclays’ latest global outlook. (Click to enlarge)

 Read more

Credit rollovers & rally monkeys

In the States, we’re still picking our jaws off the floor from the lowest CCC-rated issuance yield on record, earlier this week.

In Europe… Societe Generale’s credit strategists have an interesting round-up: Read more

The ETF transmission mechanism

At a time when traditional dealers are being squeezed by growing regulatory burdens — think Basel, TRACE and the Volcker rule — the incentive to hold market inventory is diminishing.

Not only is it expensive and risky to manage bonds, equities or commodities, there’s the fact that the old models push the boundaries of what’s acceptable in terms of principal risk and proprietary trading. Read more

The market ♥ peripheral corporate debt

Hello, credit rally — tables via Credit Suisse (click to enlarge):

 Read more

Aladdin’s bond cave

Bit of a Volcker Rule/whither market-making talker from the WSJ… BlackRock is back touting post-bank ‘internal’ trading for its clients.

Feels like it’s been building a trading platform since forever actually… Read more

Avoiding a first-ever corporate default, in China

Shandong Helon! We told you to remember the name.

Either this indebted fibre company would default on a RMB400m ($63m) bond coming due on April 15 – thus becoming the first domestic corporate default in Chinese history, and so maybe a sign of a maturing bond market – or it wouldn’t. Shandong Helon could simply get a local government bailout or a bank loan refinancing instead, under the ‘old’ rules of the game in China. Read more

Letting corporate bonds default, in China

Shandong Helon. Remember the name.

HSBC analysts have pointed out an interesting possible ‘first’ for China (H/T the FT’s Tracy Alloway): Read more

Rush to sell dollar bonds

Monday is likely to have been one of the busiest days for corporate debt issuance so far this year, with $20bn of deals in the pipeline, the FT reports. Seven investment-grade deals of benchmark size, which is usually at least $1bn, were expected to price on Monday, adding to at least $4bn of high yield or junk rated deals. Issuers have rushed to market following a drop in corporate bond yields to record lows. Average yields on investment grade bonds on Friday fell to a new record of 3.27 per cent, according to an index from Barclays Capital that dates back to 1973. European high-yield issuers are also tapping US markets in their droves, with 44 per cent of debt sold this year denominated in dollars, versus 31 per cent last year, Bloomberg says.

Highly rated US industrial bonds set records

IBM and Procter & Gamble have sold bonds with the lowest interest payments on record for US marketed corporate issues, as investors accept low returns for the safety of owning debt from secure companies, says the FT. IBM sold $1.5bn of three-year notes with a coupon payment of 0.55 per cent, the lowest for unsecured debt of that maturity at least since Dealogic, the data tracker, began compiling this information in 1995 on US marketed corporate issues. That yield compares with the three-year Treasury note’s 0.31 per cent. The US information technology company also sold $1bn of five-year debt that will pay investors 1.25 per cent, the lowest coupon rate for five-year debt. Also on Wednesday, Procter & Gamble, the consumer products group, sold $1bn of 10-year bonds with a coupon payment of 2.30 per cent, a new low for 10-year US corporate debt.

SABMiller leads US corporate bond sale surge

SABMiller, the brewery company, sold $7bn of bonds on Tuesday, in the biggest day for corporate issuance in the US in two months. SABMiller sold $7bn of bonds split into maturities of three, five, 10 and 30-year maturities to help finance its purchase of Australia’s Foster’s Group, the FT reports. It was the largest bond sale in the US since March 2011, when Sanofi-Aventis sold $7bn, Dealogic said. With markets volatile since the latter half of 2011, companies have become increasingly opportunistic. That has led to bursts of debt issuance when the broad financial markets are steady or positive and days when deals quickly dry up if the over-arching mood sours. Other issuers on Tuesday included John Sevier, Enbridge, Macy’s, Valspar, Arizona Public Service, Entergy, and Alabama Power, reports WSJ MarketBeat.

UK companies to treble retail bond issuance

UK companies plan to treble the value of bonds they issue direct to the public next year, as they seek cheaper financing from private investors hungry for yield, the FT reports. Research from Evolution Securities estimates that primary issuance of retail corporate bonds will exceed £3bn in 2012 – building on 2011’s “watershed year”, in which just over £1bn-worth of bonds were offered via brokers using the London Stock Exchange’s Order Book for Retail Bonds. In total, there were 12 new issues specifically aimed at private investors in 2011, which raised a total of £1.22bn – a 33 per cent annual increase in the number of issues, and a 377 per cent rise in the amount of debt financing secured. By contrast, Evolution calculates that issuance in the wholesale market – where institutions and fund managers buy corporate debt – rose in the first half of the year, but has since fallen by more than 20 per cent.

 

Corporate bonds to the rescue?

Back in September, the FT reported an interesting estimate by JP Morgan.

Twenty-eight European banks would have faced a total liquidity shortfall of €493bn at the end of 2010, if they had been forced to meet new liquidity requirements (which actually come due in 2015) then and there. Read more

Sterling corporate bond issuance surges

Sterling corporate bond issuance is soaring, but euro-denominated bond sales are at a six-year low, reports the FT. UK and international companies have sold more than $42bn worth of sterling-denominated bonds so far this year – a 41 per cent increase compared with the same period last year, according to Dealogic. Meanwhile, euro-denominated corporate bond sales have slumped almost a fifth, to $179bn – the lowest figure for the period since 2005. Dollar bond sales have increased 7 per cent. Corporate borrowing costs have climbed in the UK recently, but not to the same extent as in Europe, leading several continental companies to turn to London’s bond market, including France’s GDF Suez and EDF. UK investors are also open to longer-term bonds than the European market.

Her Majesty’s SME CLOs?

It’s like putting your foot on the accelerator but because the transmission mechanism isn’t working properly, the car wheels don’t respond.

Actually George, that might be because the car is on fire, and the wheels have blown off. Read more

Volatility spurs fears for M&A debt sales

Concerns are rising that turbulence in financial markets will make it more difficult to carry out billions of dollars of forthcoming debt sales to raise money for buy-outs and other deals struck this year, the FT reports. As merger and acquisition activity picked up earlier this year, private equity groups took advantage of buoyant credit markets, signing up a run of buy-outs soon to be marketed to investors, including deals for BJ’s Wholesale, the warehouse retailer, and digital education company Blackboard. Bankers say there is as much as $20bn-$25bn in loan offerings and junk bond issues in the pipeline in coming months tied to M&A transactions, among the largest since the financial crisis. They add that the market is particularly awaiting the outcome of financing for the $6.3bn purchase of woundcare specialist Kinetic Concepts – the largest leveraged buy-out agreed since the financial crisis. Banks committed themselves to underwriting the financing for these deals in better times, but in this environment might have to offer higher interest and fees to entice investors.

National Grid looks to UK retail investors

National Grid, the UK power supplier, is looking to tap into concerns about high inflation with the launch of an index-linked corporate bond aimed at UK retail investors, the FT reports. It would be the first index-linked corporate bond to be issued to the UK retail investor market by a non-financial company, according to the London Stock Exchange, and the first retail bond issue since the beginning of the summer. The National Grid bond, which is being marketed this week in roadshows to stockbrokers, would have a minimum investment of £2,000 and hopes to raise up to about £140m. Previous retail issues have been pitched at yields of about 5 per cent, a level that has tended to attract retail investors. But brokers said that with five-year gilt yields having dropped to just 1.2 per cent, corporates were less willing to issue bonds with fixed coupons as high as 5 per cent.

Disney takes advantage of low bond rates

Walt Disney on Wednesday sold its first 30-year bonds in nearly a decade, paying historically low rates in a sign that top US companies can get cheap funding in spite of the recent turmoil in the global financial markets, the FT reports. The amount of additional yield that investment-grade companies have to pay versus US Treasuries, known as the spread, on their bonds has risen in recent weeks. But that comes against a plunge in benchmark Treasury yields, keeping corporate borrowing costs low. Highly rated companies also are being judged as a relatively safe place to invest, notwithstanding these low rates. A person close to Disney told the Financial Times that the company had “opportunistically tapped the market”. It will pay a semi-annual interest rate of 1.35 per cent on $750m of five-year bonds, 2.75 per cent on $750m of 10-year bonds and 4.375 per cent on $350m of 30-year bonds. All three tranches were the lowest coupon rates on US unsecured corporate bonds since Dealogic, a research firm, began tracking them in 1995. It is Disney’s second bond sale this year but the first time it has sold 30-year bonds since 2002.

US corporate bond yields hit fresh lows

The yield on high-quality US corporate bonds has fallen to record lows as investors seek out debt from top-notch companies as a relatively safe destination for their cash, the FT reports. The average yield on the benchmark Barclays Capital index of US corporate bonds with investment-grade ratings on Wednesday reached an all-time low of 3.42 per cent, five basis points below the previous record of reached in November of 2010. “Growth is continuing to slow and that is a challenge for all risk assets,” says Ashish Shah, head of global credit at Alliance Bernstein. “Investment-grade corporate credit is acting as a safe haven, because these companies have record amounts of cash on their balance sheets and low levels of short-term debt.” The rally in top-quality corporate debt comes as stocks and riskier bonds have continued to lose value. The uncertainty regarding the outlook for sovereign credits has made corporate bonds prized by investors.

In a dark, dark wood — Sino-Forest ratings edition

Interesting rating action by Fitch on Thursday:

Fitch Ratings-Hong Kong/Singapore-14 July 2011: Fitch Ratings has withdrawn Sino-Forest Corporation’s (Sino-Forest) Foreign Currency Issuer Default Rating and senior unsecured debt rating of ‘BB-’. The ratings were on Negative Watch at the point of withdrawal. Fitch has withdrawn the ratings as it is unable to obtain sufficient information to maintain them. Read more

British Land aims to raise $500m in US

British Land is planning to raise close to $500m by issuing bonds in the US private placement market, the FT says, in the latest sign of a big UK group diversifying funding sources. The UK’s second-largest property company, which owns property such as Broadgate in the City of London, had aimed to place $200m of bonds with US investors, but the fundraising was increased to about $480m amid robust demand. Demand among US investors for privately-placed bonds – structured issues acquired directly by institutional investors such as insurance companies – are at record levels, according to bankers, especially for those backed by strong corporate covenants. The process is seen as simpler and quicker than the public bond markets.

 

Google adventures out along the yield curve [updated]

By John McDermott and Cardiff Garcia

Here’s a corporate bond mystery for you. Read more

Google makes bond debut with $3bn issue

Google has made its first foray into the bond markets, seeking to raise $3bn in an effort to boost its domestic cash reserves at a time when US corporate borrowing costs have returned to historical lows, the FT reports. The world’s largest internet search engine planned to raise the money with bonds maturing in three, five and 10 years. Google said that the money would replace existing commercial paper, suggesting that the debt sale was opportunistic to take advantage of low interest rates, but companies often turn to the bond market to get a foothold that lets them borrow more in future. According to Bloomberg, the company split the sale evenly between three-, five- and 10-year notes. The 1.25 percent, three-year notes yield 33 basis points more than similar-maturity Treasuries, the 2.125 percent, five-year debt pays a 43 basis-point spread, and the 3.625 percent, 10-year securities offer 58 basis points above benchmarks.

Debt-financed buybacks on the increase

Blue-chip companies from Philip Morris to AT&T are taking advantage of cheap debt to finance share buy-backs and mergers and acquisitions activity at an accelerated pace, the FT reports. According to Dealogic data, companies with investment-grade ratings have borrowed more than $200bn in the dollar-bond market, up from $134bn by this time last year. The trend could mark a turning point for the credit cycle and the hoard of cash built up by companies since the crisis. While it’s often unspecified how companies plan to use bond sale proceeds, perhaps 20 per cent of borrowings will be used for M&A financing, a proportion last seen in 2006 and 2007.

Corporate balance sheets: when will the real spending begin?

A quick rewind is necessary to put this post in context.

We wrote repeatedly last year about the problem of non-financial companies hoarding their cash rather than spending it, and attributed the trend to a few different factors: Read more