While nominal borrowing costs are now much lower in Europe than in the US, that by itself isn’t a good reason for firms that earn money in dollars to start taking out debt in euros. Modest moves in exchange rates can wipe out any perceived benefits from lower interest rates — just imagine what would happen if the euro returned to its level last summer of around $1.4 — and the cost of hedging this currency risk usually means that borrowers are better off staying in local currency. American corporate treasurers know all this, yet are also responsible for more than a fifth of all the euro-denominated investment grade corporate bonds issued in 2015.
What gives? Read more
Sometimes, the courts of England and Wales taketh away when it comes to the law on restructuring bonds and getting debtors out of holes. And other times they giveth.
A landmark decision by the England and Wales Court of Appeal on Monday falls under the latter… Read more
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.
Standard & Poor’s has been getting very interested in China’s companies’ risk profiles recently, amid rapid growth for the country’s immature corporate bond market in the past year.
The ratings agency has already published a whole set of reviews into Chinese banks. On Friday, it released a study of 107 large Chinese companies evaluated for business risk and financial risk. Read more
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
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.
OK — you’re sick to death of hearing about the European Central Bank’s three-year liquidity may, or may not, get banks to buy sovereign debt to pledge as collateral.
So why not hear about all the other extra trash assets the ECB will now accept? Potentially much more economically critical trash. assets. (Update — well, that’s our point about these assets being diverse and difficult to value made for us… we’re sorry for calling them trash. That is indeed unwarranted hyperbole. In truth the assets here vary widely in type, quality, etc. The main thing is their basic economic importance, which is why the ECB’s move is not to be underrated.) Read more
European credit markets are bracing for more defaults as the bulk of collateralised loan obligations winds down in 2012 and 2013, the FT reports. Such CLOs have a finite life span after which they are not allowed to trade new loans for existing ones, or reinvest money received from repayments or interest on existing loans they hold. By the end of next year, the majority of CLOs will have gone “static”. By 2014, more than 98 per cent of European CLOs will have have a reached the same point, according to a report by Standard & Poor’s. This is expected to hurt the market’s ability to refinance an estimated €250bn of leveraged loans maturing in Europe between now and 2017, and removing a source of credit to the wider economy.
Amazing what you find in analyst reports on German telecom credit these days (via Societe Generale’s Juliano H Torii):
…we think investors might be waking up to the possibility of the mirror image of redenomination risk – what we will call “no-redenomination” risk (NORED) – a risk that may be severely underestimated for the German companies in our space.
Falling borrowing costs, subdued default rates and healthy issuance created a robust start to the year for corporate credit markets but mounting fears over the eurozone debt crisis and tepid global economic growth have darkened the mood, writes the FT. Benchmark interest rates have continued to drop but this month’s markets turmoil has sent spreads higher on both investment grade and high-yield corporate debt, the riskiest part of the market.
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
Petrobras, Brazil’s national oil company, plans to raise up to $40bn in debt by 2014 as it prepares for the development of its “pre-salt” oilfields, according to its chief executive Jose Sergio Gabrielli, the FT reports. The target, which follows a $6bn bond issue two weeks ago that was the biggest in Brazilian corporate history, would significantly raise Petrobras’ debt ratios, but not to levels that would jeopardise its investment grade status. Raising debt on this scale means that Petrobras will dominate corporate debt markets in the country for the next three to four years.
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.
Caterpillar, the US-based manufacturer of earthmoving equipment, has launched a two-year Rmb1bn bond with a coupon of 2 per cent in Hong Kong, becoming the first foreign industrial multinational to issue debt in the Chinese currency, the FT reports. McDonald’s was the first foreign multinational to dip its toes into the market, but its Rmb200m is dwarfed by the Caterpillar placement, which was seven times oversubscribed. The deal will give momentum to the nascent offshore market in renminbi-denominated debt which financiers hope will become an important fundraising route for companies with operations in China.
Around $51bn in corporate bonds and leveraged loans have entered the debt market in the past two days, with this week looking to be the busiest of the year so far for high-grade corporate issuance, the WSJ reports. The culprit is Planet Zirp, of course — corporates are benefiting from interest rates keeping close to zero, while investors are keen for higher-yielding assets. Allergan issued $650m of bonds at a 3.375 per cent yield this week, for example — the lowest yield for a US corporate since at least 1995. But companies are already pumped with cash, the NYT notes — they’re just borrowing anyway because it’s so cheap.