Companies have raised more debt in the US bond market this year than ever before, as a dash for cash during the coronavirus crisis took issuance past previous full-year totals with months left to go.
A $2bn bond from Japanese bank Mizuho and a $2.5bn deal from junk-rated hospital operator Tenet Healthcare helped nudge overall US corporate bond issuance to $1.919tn so far this year, surpassing the previous annual record of $1.916tn set in 2017, according to data from Refinitiv.
The surge marks a dramatic revival for the market since the coronavirus-induced rout in March, when prices slumped and yields soared, increasing businesses’ cost of borrowing to prohibitive levels and temporarily shutting down new issuance.
“There has been a phenomenal amount of issuance,” said Peter Tchir, chief macro strategist at Academy Securities in New York. “It’s been the busiest summer I have ever seen. It’s felt like we have been setting issuance records month after month.”
The Federal Reserve’s historic interventions, including a pledge late in March to buy corporate bonds for the first time, sparked a swift recovery, pulling down borrowing costs and reopening the market.
After an initial rush by top-rated companies to secure emergency funds, the bond binge has extended to lower-quality companies, as well as opportunistic deals from those looking to lock in cheaper funding. Investment-grade bond yields have reached record lows, dropping below 2 per cent for the first time ever in July.
However, the deluge of fundraising has raised concerns that companies are racking up debt even as earnings remain depressed.
Many companies hardest hit by the pandemic have been pushed to secure bond deals against their assets. Airlines have pledged aircraft and flying routes, and cruise operators have offered ships and even an island in the Bahamas.
The wave of debt has been greeted by investment bankers, who saw their fees reach new records for the first half of the year, boosted by bumper bond deals for the likes of AT&T, Walt Disney and Ford.
Bankers remain hopeful for more to come, with an uptick in issuance expected in coming weeks as companies look to do deals before the US presidential election in November, which could cause greater volatility in the market.
Meghan Graper, head of the US investment grade syndicate at Barclays, said a “healthy backlog” of deals should land after the US Labor Day public holiday on September 7. “The majority of borrowers we are speaking to are looking to take advantage of the current dynamic and get in ahead of the election,” she said.