Greece Debt Crisis Puts Brakes On Junk-Bond Issuance In US
June 20 2011 - 4:23PM
Dow Jones News
The debt crisis in Greece has all but halted junk bond issuance
in the U.S., and industry participants say new deals will come only
after Europe's response to the crisis is clearer.
On Monday, aerospace company Ducommun Inc. (DCO) was one of the
few issuers to announce a deal, offering $200 million of senior
unsecured notes due 2018 to finance its acquisition of LaBarge Inc.
(LB).
"We have reached a critical juncture in the EU sovereign debt
crisis," said Edward B. Marrinan, head of U.S. macro credit
strategy at Royal Bank of Scotland in Stamford, Conn. "The outcome
of the [Greek] government's confidence vote on Tuesday and
Parliament's willingness to accept the latest austerity measures
are critical to whether the EU will release the next tranche of
financial aid to Greece so the country can avoid a default on debts
that mature in early August."
Rather than chance a poor sale to risk-wary investors, issuers
are holding back to see how Europe addresses its sovereign-debt
problem. Only $1.6 billion of new issues were sold last week, the
lowest weekly total since February, said Adrian Miller, senior vice
president of fixed income strategy at Miller Tabak Roberts
Securities LLC.
In a note to clients, Miller wrote that whatever issuance does
come this week is likely to come later rather than sooner, as it
did a week ago. "While total proceeds were anemic, 86% of last
week's activity took place on Thursday and Friday as sentiment
improved," said Miller.
Marrinan said the "traditional summer lull" could also start
setting in soon, even as the market contends with the EU crisis.
"We have reached a time of year when new issue and secondary
trading volumes tend to decline, opening the door to elevated
volatility," he said.
A further challenge, Marrinan said, is that the U.S. economy is
"mired in a slow patch." If the economy's performance does not
improve soon, "investors will have another excuse to remain on the
defensive."
-By Anusha Shrivastava, Dow Jones Newswires; 212-416-2227;
anusha.shrivastava@dowjones.com
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