BLBG: Investment-Grade Bond Sales Fall in April by Most in Five Years
Investment-grade corporate bond sales fell last month by the most in five years, interrupting a record pace of offerings, as borrowers that had caught up on refinancing paused before a rush in May.
Issuance from investment-grade companies dropped 53 percent from March to $69 billion, the biggest April decline since 2004, according to data compiled by Bloomberg. Offerings more than doubled this week in a sign of revival. Goldman Sachs Group Inc. sold $2 billion of notes without a federal guarantee. Nokia Oyj, the largest maker of mobile phones, raised $1.5 billion in its U.S. market debut.
“There are plenty of borrowers that completed all or a good portion of their 2009 financing during the first quarter when the market opened after a slow second half of 2008,” said David Dinanno, managing director for investment-grade syndicate in New York at Credit Suisse Group AG. “Due to earnings season, April is one of the four slowest new-issue months.”
Bond sales will likely increase again as investors, out of “crisis mode,” take advantage of rising prices for corporate debt and a lack of supply, said Tom Murphy, a portfolio manager at RiverSource Investments LLC in Minneapolis, which has $100 billion in assets under management. Investment-grade companies have sold $456 billion of securities this year, 30 percent ahead of the same period in 2007 when they issued the most ever.
‘Flipped the Switch’
“This is the quarter over the last six months where people finally flipped the switch and said, ‘I want to buy corporates,’” Murphy said in a telephone interview.
The average yield investors demand to own investment-grade bonds instead of Treasuries has fallen 19 percent from this year’s high on Jan. 2, according to Merrill Lynch & Co.’s U.S. Corporate Master index. So-called spreads fell 29 basis points this week to 487 basis points as of yesterday. Yields fell 0.2 percentage point to 7.31 percent. A basis point is 0.01 percentage point.
Investment-grade borrowers sold $21.1 billion of debt this week, compared with $10.3 billion in the previous week, Bloomberg data show.
“There’s still a fair amount of refinancing to be done. I think treasurers are very interested in getting that done,” said Edward Liebert, chairman of the National Association of Corporate Treasurers, based in Reston, Virginia. “A significant amount of issuance is probably coming.”
Liebert also is treasurer of specialty-chemical maker Rohm & Haas Co. in Philadelphia.
Government Guarantees
Goldman Sachs, Northern Trust Corp., BB&T Corp. and Credit Suisse offered $5.6 billion of debt this week, the biggest for dollar-denominated issuance without government guarantees from banks and financial companies since August, Bloomberg data show.
“These are pretty attractive all-in yields for companies that, for all intents and purposes, six weeks ago or 10 weeks or three months ago could not access the capital markets,” Murphy said. “I think there’s going to be more non-FDIC-guaranteed financial issuing as a result.”
New York-based Goldman Sachs, one of the 19 top U.S. lenders that got preliminary results this week of government stress tests, sold five-year, 6 percent notes priced to yield 410 basis points more than similar-maturity Treasuries, Bloomberg data show. The sale marked Goldman’s second offering this year of dollar bonds without FDIC backing.
Nokia, based in Espoo, Finland, sold $1 billion of 10-year, 5.375 percent notes that priced at a spread of 237.5 basis points, and $500 million of 6.625 percent bonds due in 30 years that paid 262.5 basis points, Bloomberg data show.
‘Macho Thing’
Banks have issued $235 billion of bonds under the Federal Deposit Insurance Corp.’s Temporary Liquidity Guarantee Program since they began using it on Nov. 25, Bloomberg data show. The guarantee opened a new avenue for funding amid a credit seizure that had shut banks out of debt markets since September.
Banks are taking advantage of healing credit markets to demonstrate their ability to fund themselves on their own, Bill Gross, who helps run the world’s biggest bond fund at Pacific Investment Management Co., said in a Bloomberg Television interview.
“It is a macho thing to a certain extent,” Gross said.
High-yield companies sold $2.1 billion of bonds this week, the same as the week before, Bloomberg data show. Supervalu Inc., the second-biggest U.S. supermarket chain, sold $1 billion of senior unsecured notes due 2016. The Eden Prairie, Minnesota- based company’s 8 percent notes priced at a 587 basis point spread. Supervalu had earlier marketed $500 million of debt.
Nike in Pipeline
Yields over benchmark rates on speculative-grade debt fell 1.42 percentage point this week to 13.45 percentage points as of yesterday, according to Merrill Lynch & Co.’s U.S. High Yield Master II index. Yield fell 1.16 percentage point to 15.6 percent.
Junk-rated bonds returned 11.5 percent last month, the best since at least 1987, according to Merrill data.
High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and lower than BBB- by Standard & Poor’s.
Nike Inc., the world’s largest athletic-shoe maker, may sell as much as $760 million of debt in the company’s first offering in about five years, the Beaverton, Oregon-based company said in a Dec. 22 shelf filing with the U.S. Securities and Exchange Commission.
