Global corporate bond issuance is on course for its slowest month of the year, slumping by half from June, as companies flush with cash from a recent borrowing binge take stock of the fast-evolving coronavirus crisis.
Corporate borrowers have raised $259bn by selling bonds since the start of July, less than half the $529bn sold last month and the lowest total since the end of year slowdown in December, according to data from Refinitiv.
The drop has been particularly pronounced for higher-rated, investment-grade companies in the US, which have sold $76bn of bonds this month, compared with four consecutive months above $200bn from March to June.
The Federal Reserve paved the way for a record breaking surge in corporate borrowing at the end of March when it announced sweeping measures to support the US economy and financial markets. Companies in dire need of money to replace earnings lost as a result of the pandemic rushed to issue debt. Investment-grade corporate bond issuance in the US this year has already surpassed the total for the whole of 2019.
With many companies now stuffed with cash — reducing the imminent risk of bankruptcy — bankers and analysts say there is less desperate need to issue more bonds.
“We have never seen anything like that, it was a liquidity crisis and companies scrambled,” said Hans Mikkelsen, a credit strategist at Bank of America. “What has changed is that now they have liquidity.”
Activity more recently has focused on lower-rated issuers that have struggled to lure investor support owing to concerns over their solvency, and some bigger borrowers moving opportunistically to take advantage of record-low borrowing costs to lock in savings and push out debt maturities.
Kinder Morgan sold debt on Monday, for example, raising $1.25bn in part to refinance debt coming due in September.
AT&T also sold debt on Monday, boosting the month’s total by raising $11bn across five maturities to buy back debt coming due in roughly the next five years. The new debt ranges from a $2.25bn bond maturing in seven-and-a-half years to a $1.5bn bond maturing in over 40 years.
The average yield across investment-grade bonds fell below 2 per cent for the first time ever this month, according to an index run by Ice Data Services — and analysts are forecasting corporate borrowing costs could decline further as strong demand from investors meets dwindling supply, pushing prices higher.
“It’s definitely going to be slower for the remainder of the year but companies will come to market that need to extend their maturities,” said Monica Erickson, head of the investment-grade corporate team at DoubleLine Capital in Los Angeles.
John Stephens, chief financial officer at AT&T, said on the company’s earnings call last week that its cost of debt is as low as he has ever seen. “We’re very active in the capital markets just on managing that debt side, and I think the markets have responded well to that . . . it will continue to be a focus of ours,” he said.