WSJ: U.S. Companies Dominate Eurozone Debt Issuance
U.S. companies have flooded eurozone bond markets with new debt deals this year, a trend that bankers and investors say is likely to continue at a fast pace for the rest of 2015.
Among the long list of U.S. companies that have crossed the Atlantic, Wells Fargo & Co. and American Honda Finance Co. issued bonds in euros last week, together raising more than €2 billion, continuing a long tradition of U.S. financial firms eager to diversify their funding base.
But nonfinancial corporations have also got in on the act this year because of the low borrowing rates on offer in the euro area. In total, these U.S. companies have raised €53 billion in eurozone bond markets this year, according to data provider Dealogic as of Friday, already 39% more than they managed over the whole of 2014.
“We’ve seen huge amounts of bond issuance in euros this year from all international corporates, but especially U.S. companies. That is set to continue,” said Frazer Ross, a managing director at Deutsche Bank AG.
U.S. companies have accounted for 22% of all euro-denominated corporate bond issuance in 2015, more than French and Italian companies combined, and outpacing the 12% of the market the U.S. accounted for last year, according to Dealogic. They also make the U.S. the largest issuer in eurozone corporate bond markets by country. Last year, the U.S. came in at a distant third, with French companies issuing almost double the amount of bonds as the U.S.
Other big U.S. names to raise money in euros this year include Coca-Cola Inc., billionaire Warren Buffett’s Berkshire Hathaway Inc. and AT&T Inc. U.S. companies currently meeting investors in Europe include Pentair Ltd, an industrial manufacturer, and Digital Realty, a data center company. Both companies confirmed the meetings but didn't provide further details. Investor meetings are often, but not always, a precursor to a bond deal.
Many U.S. firms have been lured by cheap financing rates on the back of the European Central Bank’s easy-money policies.
The ECB last week reaffirmed its commitment to loosening its money supply to boost sagging eurozone inflation. The central bank cut interest rates to record lows last year and started buying government bonds in March, an approach known as quantitative easing, or QE.
The prospect of the U.S. Federal Reserve raising interest rates has also prompted a debt deluge from U.S. companies eager to lock in cheap dollar funding ahead of time. Dollar debt issuance is on track for a record year with $575 billion so far, according to Dealogic. This flood of supply has increased the cost of raising new money in dollars, prompting U.S. firms to look elsewhere.
“It still makes a lot of sense for U.S. companies to come to Europe,” said Russell Schofield-Bezer, head of debt capital markets in Europe for HSBC PLC. “With the prospect of Fed rate increases in the U.S. and QE just beginning in Europe, the historically low rates offered look very appealing, particularly for those companies with European operations.”
The U.S. bond market has had “enormous volumes of issuance,” said Edward Farley, head of the European corporate bond team at Pramerica Fixed Income, which oversees $550 billion in assets. The resulting rise in U.S. corporate bond yields means it has become “reasonably attractive for U.S. corporates to come to the European market,” he added.
The yield on the Barclays U.S. Corporate Investment Grade index was 3.4% Friday, compared with a recent low of 2.8% in April. Yields rise as prices fall.
Some analysts warn that the wave of new debt deals in the eurozone could weigh on investors’ appetite.
Many analysts predicted the ECB’s QE program would further boost corporate bonds prices in the secondary market when it started in March, as investors sold low-yielding government bonds and bought higher-yielding corporate bonds, but the flood of bond supply has meant the opposite happened.
The yield on the Barclays Euro-Aggregate Corporates index, which tracks 1,670 investment-grade corporate bonds issued in euros, was 1.4% Friday compared with a low of 0.8% in March.
Stephen Dulake, global head of credit research at J.P. Morgan Chase and Co., said that if U.S. companies issue more debt, they can “pollute the eurozone bond market.”
