LYG Lloyds Banking Group Plc

By Christopher Whittall 

LONDON--Companies are returning to Europe's corporate bond market, tapping investors for the first time since Britain's vote to leave the European Union triggered dramatic moves across global markets.

New issues on Thursday included the first sterling-denominated bond in over a month and a large sale of dollar-denominated debt from U.K. lender Lloyds Banking Group PLC.

Most companies had put off European debt issuance in the days running up to the referendum last week. Most of the firms selling bonds this week have little exposure to the U.K. and come from countercyclical industries, like brewing, that are less likely to be hit by any post-Brexit fallout. But the $1 billion in debt from Lloyds will test appetite for a sector whose shares were battered in the aftermath of the referendum result.

"It appears there is a decent amount of money to be put to work, especially after a hiatus of new issuance," said Edward Farley, head of European corporate bonds at PGIM Fixed Income.

On Thursday, British American Tobacco PLC, German transport company Deutsche Bahn AG and Jack Daniel's Tennessee Whiskey maker Brown-Forman Corp. were in the market selling bonds. And the day before, Molson Coors Brewing Co. sold an EUR800 million slug of euro debt as part of a larger dollar-denominated bond deal-- the first euro deal since the vote.

"None of these names are particularly impacted by Brexit itself, so people are happy to take a little bit more spread," said Mr. Farley, referring to the widening in the gap between corporate and government bond yields, or credit spread, since the vote.

Investors sold off European credit alongside other riskier assets, from shares to metals, following the U.K.'s unexpected vote to leave the EU. The cost of buying default protection on European investment-grade debt recorded its largest one-day percentage gain since the 2008 financial crisis on Friday, according to Simon Colvin, an analyst at Markit.

Bond markets have since steadied but at lower levels. The annual cost of insuring against a default on $10 million of European investment-grade debt for five years using credit-default swaps rose was $84,000 Thursday, compared with a recent high of $99,000 Monday and $75,000 before the vote.

Investors say the European Central Bank's corporate bond-buying program is also likely to provide a backstop for credit in the region. After starting to purchase corporate debt on June 8, the ECB had bought nearly EUR5 billion as of June 24.

"Forgotten amid Brexit is the impressive speed at which the ECB (has) begun the Corporate Sector Purchase Program," Bank of America Merrill Lynch credit strategists wrote in a recent research report.

Still, investors say that Thursday's new debt sales have been offered at attractive levels to encourage interest.

British American Tobacco, which earns the majority of its revenues overseas, sold a GBP500 million five-year sterling-denominated bond at an interest rate of 1.75%, according to a deal notice released by underwriting banks Thursday.

Deutsche Bahn sold EUR750 million of 15-year bonds, while Brown-Forman was selling EUR300 million of 10-year euro debt and GBP300 million of 12-year sterling-denominated debt.

Lloyds five-year senior debt was set to make it the first U.K. lender to borrow in capital markets following last Thursday's vote.

U.K. banking stocks have slumped in the aftermath of the Brexit vote. Shares in Lloyds ended 3.8% lower Thursday, taking losses to over 30% from a week ago.

Falls in U.K. bank bonds haven't been as dramatic. Still, some credit investors remain wary,

"We're a little bit more cagey on the banking sector. They're at the forefront of being impacted by Brexit," said Mr. Farley.

Write to Christopher Whittall at christopher.whittall@wsj.com

(END) Dow Jones Newswires

June 30, 2016 12:28 ET (16:28 GMT)

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