Record $752 Billion of Bond Sales Shows Rush For Cash Buffers
2020-04-01 04:44:54.739 GMT
(Bloomberg) -- Companies just raised a record of at least $752 billion in bond markets around the world last quarter, paying up to build cash buffers as the coronavirus pandemic darkens business outlooks.
The rush to raise funds shows how it’s not just shoppers stockpiling essentials. Companies spanning industries are hunkering down for more disruption and certain recession. One of the latest illustrating the trend was Oracle Corp., which raised $20 billion on the same day its ratings were cut.
“Companies are worrying about a collapse in revenue so they need to borrow more to pay for operational expenses,” said Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis SA. “The expectation of lower income and higher funding costs are pushing companies to issue more.”
Underscoring the desperation, executives gave the go-ahead for this debt binge even as the cost of money shot up by a record. Average spreads on high-grade dollar bonds jumped 179 basis points in the first quarter, the most ever in a Bloomberg Barclays index going back to 1989.
Massive stimulus measures from central banks and governments around the world have helped slow a broader sell-off across risk assets in recent weeks, and credit spreads have fallen from multi-year highs.
But risks still abound, not least for money managers who have been bargain hunting in recent days.
In maybe the clearest sign that credit markets are abandoning their risk inhibitions, investors are preparing tothrow billions of dollars at Carnival Corp. and Airbus SE, two companies that are among the hardest hit by the pandemic.
One indicator continuing to show serious concerns for the global economy is oil, which posted the worst quarter on record. The rout has sparked a flurry of corporate and sovereign downgrades from Halliburton Co. to Mexico.
“We see rising default risks given slowing growth and the collapse in energy prices,” said Charles Macgregor, head of Asia at Lucror Analytics, an independent research firm based in Singapore. The broader record bond bonanza shows “wanton investor appetite” amid all the lingering risks, he said.
U.S.
* A flurry of deals in the U.S. came just days ahead of what’s expected to be another record number of jobless claims -- claims that very likely could come from former employees of Carnival and the like, which had to lay off thousands of workers as the pandemic halts global travel
* The primary market continued to encourage riskier borrowers to come forward, after YUM! Brands successfully reopened access to high-yield companies Monday
* Thirteen deals combined to price just over $13 billion on Tuesday, pushing the total for March to a new monthly record
* KKR-backed Envision Healthcare, a services provider, fully tapped its revolving credit facility, and said the impact from
the pandemic over the past two weeks could result in losses
Europe
* Europe saw its strongest quarterly sales ever -- more than 510 billion euros ($562 billion) -- mainly due to huge volumes at the start of 2020
* Among corporates, French airplane maker Airbus was in the market for its first time since 2017. Mercedes-Benz maker
Daimler AG, E.ON SE and Orange SA were among other non-financial borrowers raising new euro debt
* Still, yields on euro high-grade corporate bonds relative to German bunds were at the highest since 2011
* S&P Global Ratings says it expects default rates of European high-yield firms to rise to 8% by December from 2.2% last year
Asia
* The rebound in global bond sales in recent weeks has so far eluded Asia. After record issuance in January, sales of dollar securities by the region’s issuers, including financials and sovereigns, sputtered in the first quarter, totalling about $86 billion, up only about 3% on the year-earlier period
* One reason for that is that unprecedented stimulus from the Federal Reserve and European Central Bank has had more direct benefits in the U.S. and European markets
* Another factor is that Asian companies have been able to tap local-currency markets. Chinese companies sold a record amount of domestic bonds in March, for example, after Beijing flooded
markets with cash
* But there have been signs in recent days that more borrowers may offer dollar debt. Chinese tech giant Baidu Inc. was
marketing an offering Wednesday
* Spreads on top-rated Asian dollar bonds were 10-20 basis points wider Wednesday, according to traders. They ended the first quarter 146 basis points wider, the worst blow-out in a Bloomberg Barclays index going back to 2009
By Denise Wee and Finbarr Flynn