Print it, and they will come
=DJ Corp. Bonds Roar Back To Record Issuance In January
31 Jan 16:53
By Dena Aubin and Tom Barkley
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--After a difficult year, U.S. corporate bonds had a
record-breaking January, posting the most new investment-grade issuance in a
single month ever and the most issuance for a January in the high-yield market.
Taking advantage of falling interest rates, U.S. corporations sold some $76.5
billion of long-term dollar-denominated debt this month, according to CommScan
Debt Desk. That total excludes agencies, sovereigns, money market instruments
and medium-term notes.
In the investment-grade arena, companies sold $62.3 billion in debt this
month, easily vaulting the previous monthly record of $56.1 billion sold in
June 2000.
The speculative-grade market, which had been choked off by rising defaults
and disappearing liquidity, also roared back to life in January. High-yield
issuance came to $14.2 billion by mid-afternoon Wednesday, the biggest January
ever, according to Thomson Financial Securities Data.
Two more issues expected to price later in the day, Insight Communications
Company Inc.'s (ICCI) $150 million senior notes and Delta Downs Enterprises
LLC's $85 million senior notes, would bring the monthly total to nearly triple
last January's $5.2 billion.
While the monthly high-yield issuance fell short of April 1999's record of
$18.2 billion, the resurgence in demand is good news for a market that had been
largely closed off as a financing vehicle for many companies with
lesser-quality credit.
Supply Bodes Well For Economy
January's surge in issuance also bodes well for economic activity, which
often strengthens after a sharp upturn in corporate bond offerings, said John
Lonski, chief economist at Moody's Investors Service.
"You're seeing the early signs of growth in liquidity and growth of funding
that ought to filter through the entire economy," said Lonski.
The resurgence of the high-yield market "could be telling us we are not on
the verge of a credit crunch that otherwise might all but guarantee a
recession," Lonski said.
The wave of issuance was spurred in part by a surprise Federal Reserve
interest rate cut on Jan. 3, which both lowered borrowing costs and gave a shot
in the arm to demand for spread product. An additional 1/2 point interest rate
cut by the Federal Reserve Wednesday should keep the corporate issues flowing.
"The high-yield market, given the problems in 2000, became oversold," said
Edward Mally, managing director of high-yield research at CIBC World Markets.
After the Fed's Jan. 3 rate cut, a little more rationality took over and
investors saw opportunity in the yield margins which had widened to about 8.5
percentage points over Treasurys, he said.
The backlog of companies needing financing was met with massive mutual fund
inflows of about $2 billion in the first three weeks of the year, said Mally.
In the high-grade arena, January is normally a heavy issuance month as
corporate treasurers resume borrowing after the holidays, but the Fed's action
added fuel to the seasonal upturn, said Paul Young, managing director in the
syndicate group at Salomon Smith Barney.
"People were very uncertain about things going into year end and the Fed has
reset the tone," said Young. "We've never had a January like this."
February Hangover?
Contributing to the record month were jumbo deals from the Big Three
automakers: Ford Motor Credit Co.'s (F) $8.25 billion equivalent global
offering, DaimlerChrysler's (DCX) $7.1 billion equivalent offering and a $3.75
billion global offering from General Motors Corp. (GM) and its finance arm,
General Motors Acceptance Co. (X.GMA).
In the banking arena, Citigroup (C) sold $5 billion of debt, Bank of America
Corp. (BAC) sold $3 billion and Bank One Corp. (ONE) sold $2 billion.
Corporate bonds have also performed well in the secondary market.
Yields on single-A rated industrial bonds, which averaged 2.68 percentage
points over Treasurys in December, tightened to only 2.38 percentage points in
January, according to Moody's.
"You've got a much healthier market," said Mitchell Stapley, portfolio
manager for Kent Funds, Grand Rapids, Mich. "We're no longer fighting the Fed
in terms of them staying on the sidelines or raising rates."
With the Fed now being proactive to restore liquidity, investors believe the
economic slowdown will be short-lived, Stapley said.
But some analysts are questioning whether the rally will last.
After a big January, the pace of returns usually slows in February as
indigestion from the new issue calendar sets in, according to CreditSights, an
independent research firm. In fact, February and March are typically the two
worst months in terms of average returns for corporate bonds, CreditSights
said.
-By Dena Aubin and Tom Barkley, Dow Jones Newswires; 201-938-2189;
dena.aubin@dowjones.com
(END) DOW JONES NEWS 01-31-01
04:53 PM |
