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Blue-Chip Firms Ramp Up Debt Sales While the Going Is Still Good

This content was published on June 7, 2021 - 17:12

(Bloomberg) -- High-grade companies and banks are borrowing at an increasingly rapid clip as signs accumulate that the best funding conditions since 2007 may not last.

Monday’s onslaught of 12 new U.S. investment-grade deals is the biggest daily count since March 3. Borrowers came from across the spectrum -- large banks like Goldman Sachs Group Inc., bellwethers such as Deere & Co., household names General Motors Co. and HP Inc., and a handful of utilities.

Citigroup Inc. sees “market factors that should encourage high-rated, lower-levered firms to take advantage of a market hungry for dollar-denominated spread product by pulling forward borrowing plans,” strategists led by Daniel Sorid wrote Friday. Citi’s base case for annual high-grade supply is $1.35 trillion, which would trail last year’s record but still exceed supply totals for 2018 and 2019.

Three high-grade issuers considered bond sales on Friday, the morning of a major economic data release. While only one actually priced, sales at such a time are rare, showing how companies are more aggressively taking advantage of market windows.

Historically cheap funding costs, a desire to get in before a summer lull and the Federal Reserve’s decision to unwind its secondary market corporate credit facility are all spurring companies on. They have been somewhat insulated from the impact of higher government yields by spreads over Treasuries staying razor thin.

Beyond attractive costs, some high-grade borrowers may view the Fed’s decision to sell corporate bond holdings as a signal that the central bank no longer thinks it needs to be buyer of last resort, Bloomberg strategist Brian Smith wrote Saturday. That points to the possibility of wider spreads and may be driving issuance, Smith added.

Another potential factor accelerating issuance: a desire to get deals done before investors and underwriters take off for summer vacations.

“Seasonality shows a modest pace of issuance as we approach the summer with more holidays and as market participants go on vacations,” Bank of America Corp. strategists led by Hans Mikkelsen wrote in a note distributed Monday.

U.S.

Saudi Aramco, the world’s biggest energy company, hired advisers including Citigroup Inc. and Goldman Sachs Group Inc. for its first dollar-denominated Islamic bond sale.

  • MicroStrategy Inc. is borrowing $400 million to buy more Bitcoin while also writing down the value of its existing holdings. It’s the first-ever junk bond sale used for financing purchases of the volatile cryptocurrency.
  • The debt financing to support the buyout of medical supplies maker Medline Industries is likely to include a small portion of euros as part of a mainly dollar-denominated deal, according to people familiar with the matter
  • For deal updates, click here for the New Issue Monitor
  • For more, click here for the Credit Daybook Americas

Europe

Public sector issuers may lead this week’s new bond offerings in Europe, after a slew of new mandates from the sector including from rescue fund EFSF and Agence Francaise de Developpement.

  • Italy was among at least 15 issuers announcing plans to pitch new debt deals, heralding a hectic session tomorrow for Europe’s market for publicly-syndicated bonds
  • Lloyds Banking Group and Carrefour Banque SA were among 13 issuers offering deals in Europe’s primary market on Monday, which saw 10.4 billion euros ($12.7 billion) in volume
  • Emirates Development Bank appointed Emirates NBD Capital, Standard Chartered Bank, Goldman Sachs and Industrial and Commercial Bank of China to arrange investor calls from Monday
  • JPMorgan made a number of changes to its EMEA leveraged finance capital markets team, according to people familiar with the matter
    • Managing director Todd Rothman and executive director David De Boltz, both from the bank’s EMEA leveraged finance capital markets team, have moved from London to New York
  • BlackRock Inc., Carlyle Group Inc., and Turkiye Garanti Bankasi A.S. are among firms that have so far this year borrowed $38 billion of loans with terms tied to ESG criteria. That puts financial companies ahead of utilities as the most active sustainability-linked loan borrowers for the first time

Asia

The Asia ex-Japan dollar bond market started the week with at least three debt offerings on Monday.

  • China Everbright Bank mandated a group of Chinese and international institutions for a USD senior bond
  • Pacific Century Premium Developments is planning a series of fixed income investor calls commencing on June 7
  • Speculative-grade dollar corporate bonds from Asia have returned about 0.9% so far this year, compared with around 2.5% for their U.S. peers

©2021 Bloomberg L.P.

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