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Corp America: Pushing to Sell Debt Before the Holidays

Coinbase CEO
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EDITOR NOTE:  Investors are feeling more optimistic about the economy as COVID vaccine development transitions toward vaccination distributions. Corporate America is trying to get in on the holiday bargain shopping season, issuing new debt before the end of the year. Newly-issued investor-grade bonds are being bought up by the market, bringing spreads to pre-pandemic levels. Junk debt and leveraged loans are also seeing heightened issuance and buying activity. Folks, be warned that “nominal” yield means very little when its underlying cash values are undergoing severe debasement. Only “real” yields count. And given the nation’s out-of-control debt, spending, and dollar debasement, might nominal yields mean nothing other than opportunity cost? We think it's quite a possibility.

Credit markets are getting ready for a whirlwind of activity next week as companies rush to secure financing before the end of the year.

Investors can expect as much as $20 billion of investment-grade issuance in what’s likely the last sizable burst of deals before the holidays. Demand for new debt has been relentless and most newly sold bonds have rallied in secondary trading, smoothing the way for borrowers to move forward.

Progress on coronavirus vaccines has lifted sentiment and contributed to a compression in spreads, which are expected to remain at pre-pandemic levels for the remainder of 2020.

“Borrowing conditions remain favorable for many issuers, especially those in the investment-grade and high speculative-grade categories,” S&P Global Ratings’ David Tesher wrote in a note. “Issuance has been fairly robust at a time of year when there is often a slowdown in the number of borrowers coming to market. The rally in bonds has reduced risk pricing for even the least-creditworthy.”

The junk bond and leveraged loan markets will also remain active, according to Jerry Cudzil, specialist portfolio manager and head of U.S. credit trading at TCW Group Inc. “We think we have another week-and-a-half of calendar to maybe two weeks,” and that it’ll be “well absorbed,” he said. “The base case here is a market that’s in very solid technical shape through the end of the year.”

Building material distributor US LBM Holdings Inc. and information technology firm Virtusa Corp. are marketing high-yield notes that are expected to price around midweek. Empire Communities Corp. is also selling new debt -- and more companies may follow suit after junk bond yields hit another record low.

There are 17 leveraged loans worth almost $10 billion due next week, the most in more than a month. US LBM has a $1.5 billion buyout loan in the works alongside its bond sale, while the commitment deadline for Zaxby’s Operating Co. LP’s $875 million deal is on Tuesday.

Art de Peña, head of loan syndicate and distribution at Mitsubishi UFJ Financial Group Inc., says there’s a “massive opportunity” in private equity right now to finance M&A deals going into the new year.

Elsewhere, analysts at JPMorgan Chase & Co. wrote Friday that they’re watching for any updates on FirstEnergy Corp., which was downgraded to junk status after it withdrew $2 billion on its credit facilities to maintain a cash cushion while a U.S. Department of Justice probe continues.

Originally posted on Yahoo! Finance

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