Corporate Bond Volume Tops May Forecasts Despite Volatility
May 31 2012 - 4:56PM
Dow Jones News
Corporate borrowers braved agitated markets Thursday to get
financing done before what could be a more volatile market in
June.
British American Tobacco PLC (BTI) was on track to sell $2
billion in three-parts, Boston Properties Inc. (BXP) issued $1
billion of 10-year bonds and Tampa Electric completed a $300
million sale of 30-year bonds.
The deals were brought to market while Treasury yields were in
freefall this morning, as reflected by the all-time low on the
benchmark 10-year note, at 1.533%. Treasury yields subsequently
moved higher prior to ending the session down, while the Dow Jones
Industrial Average moved into positive territory, after losing 100
points midmorning, before ending down more than 25 points.
The three deals push high-grade issuance to roughly $83.5
billion this month, according to Dealogic, just beating the $80
billion forecasts commonly cited at the start of May. Issuance is
expected to drop in June, with syndicate desk estimating $30
billion and $60 billion to get sold.
The recent uptick in volume reflects a desire among companies to
jump into the market and get financing plans out of the way now,
even though broader markets are shunning risk, said Peter Aherne,
head of North America Capital Markets and Syndicate at
Citigroup.
"There's an expectation that conditions could be just as
volatile, if not more so, next month," he said.
The list of events that could spook markets next month is long:
The European Central Bank has a policy meeting June 6, France holds
first-round parliamentary elections June 10, the Bank of Japan
discusses monetary policy June 14-15 and Greece holds parliamentary
elections June 17. Also, Group of 20 leaders will gather during the
week of June 18 in Mexico.
The Federal Reserve's long-bond buying program, Operation Twist,
is scheduled to end in June, and Moody's Investors Service has
telegraphed it may soon downgrade a number of global banks.
Yet so far, investors have been happy to greet new bond deals
with a loving embrace. When Kraft Foods Group Inc. sold $6 billion
in a four-part deal Wednesday, it took $23 billion of orders. When
United Technologies Corp. (UTX) sold $9.8 billion in a six-part
offering last week, it garnered $38 billion of bids.
Those two deals, along with Eastman Chemical Co.'s (EMN) $2.4
billion, three-part offering earlier this week, helped push
acquisition-related financing this month to a 12-month high of
$18.1 billion, Dealogic shows.
A rise in such financing is often viewed favorably as a signal
of economic expansion, but with two deals accounting for 87% of
May's merger-and-acquisition deals, that's a tough conclusion to
draw this time.
"Monthly volume was flattered by a handful deals that were in
the pipeline for a while," said Edward Marrinan at RBS Securities.
"I do not believe this month's experience is the start of a new
trend of higher M&A and related financing."
But the appetite does imply demand for new deals won't let up
even if broader conditions are deteriorating. New deals tend to be
the most easily traded, and the recent performance in the secondary
market from UTX and Kraft has been encouraging to issuers and
investors alike.
UTX 4.5% coupon, 30-year bonds were the most actively traded
bond in Thursday's session, MarketAxess shows. Spreads tightened
0.01 point to 1.46, versus 1.73 when issued.
New issues performed well Thursday.
The $2 billion BTI deal comprises three-, five, and 10-year
bonds, offering respective spreads to Treasurys of 1.15 percentage
points, 1.5 points and 1.8 points. The offered spread declined by
0.05 point on each tranche, representing strong demand.
The issue, done via B.A.T International Finance, marks the
company's first U.S. dollar debt deal since 2008, according to
Standard & Poor's LCD.
Boston Properties priced its 10-year bond to yield 3.876%, or
2.30 points over Treasurys. Tampa Electric sold its 30-year notes
to yield 4.116%, a 1.45-point spread.
-By Patrick McGee, Dow Jones Newswires; 212-416-2382;
patrick.mcgee@dowjones.com
Boston Properties (NYSE:BXP)
Historical Stock Chart
From Mar 2024 to Apr 2024
Boston Properties (NYSE:BXP)
Historical Stock Chart
From Apr 2023 to Apr 2024
