LONDON/NEW YORK- Companies took advantage of a window of opportunity to launch debt sales on both sides of the Atlantic, after coronavirus concerns chilled deal markets last week.
Some worried the chance could be a fleeting one, after risk appetite appeared to sour as stocks and bond yields fell on the heels of Tuesday’s emergency rate cut by the Federal Reserve.
Issuers sold 5.25 billion euros on Europe’s debt capital markets on Tuesday, a day after stocks rallied strongly on hopes of central bank support.
UK analytics company Relx raised 2 billion euros of four, eight and 12-year bonds, while US industrial conglomerate Honeywell International, which recently saw a surge in demand for its protective face masks, priced 1 billion euros of four and 12-year bonds.
US issuers, including Sherwin-Williams, Texas Instruments, McDonald’s, Entergy Louisiana and American Electric Power, as well as Canada’s Canadian Pacific Railway, raised $7.2 billion through bond sales on Tuesday, according to Refinitiv IFR data.
The borrowers, who had to put their deals on hold after investor meetings in late February, had to pay 10-15 basis points on top of what they would have paid prior to the coronavirus volatility, bankers said.
The German states of Hessen and Lower Saxony also sold bonds on Monday, alongside a covered bond – the safest type of bank bond – from German lender Commerzbank.
“Low beta and low exposure names to the [virus] outbreak in Europe and around the world are ideal candidates to come like this and if we see a further stabilization, potentially also on the back of increasing visibility on what the central banks’ reactions will be, it should continue,” said Cem Keltek, credit strategist at Commerzbank in Frankfurt.
“The question we were trying to analyze is whether this is a single-day or multiple-day window. We obviously don’t know right now,” said Andrew Menzies, global co-head of corporate origination at Societe Generale in London, citing hopes for central bank stimulus.
Last week, a mere six deals raised just short of 10 billion euros on Europe’s debt capital markets, according to data from Refinitiv IFR, as markets reacted to an acceleration of coronavirus cases outside China.
That was down from an average of 45 billion euros every week this year, according to a Reuters analysis of data from Refinitiv IFR. The US market ground to a similar halt, with no high-yield or investment-grade corporate deals inked in the primary market last week.
While debt market participants are optimistic for the right credits, the situation is more challenging for virus-hit sectors as well as riskier, sub-investment grade and emerging market credits.
“The big test will be some sectors – for example for frequent borrowers, something like autos,” said Rupert Lewis, head of European syndicate at BNP Paribas in London, citing the equity market’s reaction to the sector and supply chains reliant on China. – Reuters
