Posts tagged 'Corporate Bonds'

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

John Lewis to launch retail bond

UK department store chain the John Lewis Partnership on Sunday said it expected to raise £50m by offerings its 75,000 partners and 1.5m partnership card and account card customers the opportunity to invest in a retail bond, reports the FT. It is the first time the company has sought to raise funds in the retail market, said a spokesman. John Lewis is expected to strike a cautious note in its earnings report on Wednesday, despite expectations of a 15% annual increase in profit and a possible rise in staff bonuses. Nick Bubb, analyst at Arden Partners, forecasts that pre-tax profit in the year to Jan 31 will increase from £307m to £352m. Reuters adds that its the five-year fixed-rate bond will launch on Monday.

Peripheral debt — more corporate connections

Further to the different reactions of Portuguese corporates to their sovereign’s plight in the market — courtesy of Fitch, here’s a handy tabulation of corporate liquidity across the periphery:

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Portugal’s broken debt, the corporate connection [updated]

When a sovereign can’t sustainably issue its own debt in markets, the problem is that neither can sovereign-linked companies.

So spare a thought for REFER, Portugal’s state-owned railway infrastructure company: Read more

Corporates stampede to bond sales

It’s been a record week for corporate debt issuance in US markets, says Bloomberg — $48.2bn has been sold, eclipsing a previous week high of $46.9bn in May 2009. While General Electric Capital got the largest single offering away, 57 per cent of the week’s issues came from foreign sellers. Looking at investment-grade debt alone, the WSJ estimates that at least $35bn has been sold, making 2011’s market the busiest in this sector since 2010’s first week. There is one caveat to the current optimism, the FT warns: yields on Treasuries are rising at a faster pace than corporate bonds, which may make investors far more selective over the credits on offer.

Bond wave strikes on both sides of Atlantic

Companies on both sides of the Atlantic have embarked on an early-year rush to issue debt in an effort to secure financing before any rise in borrowing costs, the FT reports. The surge in bond issuance on Tuesday came amid optimism about the US economy’s growth prospects and corporate earnings. An estimated $35.6bn in dollar-denominated bonds were priced on Tuesday, according to Dealogic. In the US, General Electric’s finance arm led the issuance wave with the sale of $6bn of debt. Europe’s banks also raised more than €7bn ($9bn) in covered bonds – that market’s busiest day in more than a year. On Monday,Warren Buffett’s Berkshire Hathaway had sold the first corporate debt of the year. The $1.5bn bond offering set a positive tone for the dollar markets, the most important source of debt financing for companies and banks around the world.

Basel liquidity rules, going neo-medieval

Can we talk a bit more about the scandal of Basel III allowing banks to give government bonds a zero risk weighting on their books? This time regarding Basel’s liquidity rules.

Actually, can we talk about the related global shortage of AAA-rated assets and what that means for sovereign debt as well? Read more

Balance sheet optimisation BOOM

All hail Standard Chartered’s new synthetic Collateralised Loan Obligation:

2 December 2010, Singapore – Standard Chartered Bank has completed its sixth Collateralised Loan Obligation (CLO), START VI CLO, under its multi-award winning START CLO programme. Read more

Citi sees no bubbles

At least not yet.

Although perhaps best to look away if you’re loaded up on US junk bonds, or Chilean and Indonesian equities in your portfolio. Read more

Blue chips flock to US bond market

Companies from UPS to Time Warner Cable have rushed to lock in the low interest rates still available in the US bond markets, using the money to plug pension fund gaps, buy back shares or build up contingency cash piles, reports the FT. with government bond yields at near-record lows, the amount of money borrowed in the corporate bond markets so far this month has exceeded that of any previous November, according to data provider Dealogic, which said that blue-chip companies with investment grade ratings sold more than $41bn of new bonds in the past two weeks.

Winding down at the BoE

What’s this? Some good news from the Bank of England?

Out this Monday — a slew of announcements related to the Old Lady’s support programmes for British credit. They include (drumroll please) the following: Read more

Bank of Japan speeds up move to stimulus

Japan’s central bank has announced that it will buy up lower-rated corporate bonds and rescheduled its next monetary policy meeting to just one day after Federal Reserve officials will likely unveil QE in the US, says Bloomberg. The Bank of Japan’s governor said that the meeting date had been changed so that members could discuss buying ETFs and REITs. However, the BoJ has a clear incentive to start easing before the yen’s strength gets out of hand in a US QE environment, according to Reuters. The BoJ meanwhile believes that Japan’s recovery is slowing down even as it claims the country will exit deflation some time in 2011, Nikkei reports.

Forget quality

Jake of Econompic Data on Monday posted a couple of interesting charts emphasizing the remarkably similar performance this year of corporate bonds with different ratings:

 Read more

QE and exploding pensions, again

Citi is back with another take on low bond yields and pension accounting.

And before you fall asleep (wake up!) this is an update of Citi’s March 2009 note on quantitative easing and exploding pensions. Read more

Rating agency multiplicity

And so on, go the regulators.

But watch it. A new NBER working paper — by Bo Becker of Harvard Business School and Todd Milbourn from Washington University — asks just how increased competition affects the ratings industry? Their findings are not what you might expect. Read more