Debt-Market Tumult Hits Corporate-Bond Sales
September 28 2015 - 7:24PM
Dow Jones News
By Mike Cherney
Bond-market turmoil mounted Monday, as three companies reduced
or put off planned bond sales in response to soft investor demand,
damped by concerns that a global economic slowdown is taking
shape.
Santander Holdings USA Inc., the U.S. arm of Spanish bank Banco
Santander SA, canceled a planned sale that had been expected at $1
billion or more, a person familiar with the deal said. Chattanooga,
Tenn.-based shopping-center company CBL & Associates Properties
Inc. pulled a $300 million bond sale. Westfield Corp., another
shopping-center firm, canceled the sale of 10-year bonds, though
the company was able to sell $1 billion in five-year debt at higher
yields than initially expected.
The market weakness is the latest sign of building worries about
the pace of global economic growth. The deals pulled Monday came
from companies carrying investment-grade ratings; bankers had
little trouble selling similar bonds earlier in the year.
"I have never seen the investment-grade primary markets this
schizophrenic before," said Ron Quigley, managing director and head
of fixed-income syndicate at Mischler Financial Group. "One day the
window is open, the next it's slammed shut."
U.S. corporate-bond issuance in 2015 is up 15% from the
comparable year-ago period, according to Securities Industry and
Financial Markets Association data, after setting records in each
of the past three years.
But the market action over the past month reflects anxiety among
some investors that slower growth in China and persistently low
commodity prices will push some companies into financial distress
and dim global economic prospects. Bond investors in recent months
have demanded higher yields relative to Treasurys to own U.S.
corporate debt, indicating some worry about companies' ability to
pay back their debt.
"We're starting to become a little more cautious in terms of our
views," said Christopher Coolidge, a portfolio manager at
Brandywine Global Investment Management, which oversees $65
billion. "We're OK heading into the end of the year, but next year
I think is going to be pretty tough for the U.S. economy."
Bonds backed by mining giant Glencore PLC dropped sharply after
an analyst report from Investec Securities renewed questions about
whether the Switzerland-based company will be able to reduce its
debt load amid soft commodity prices. The prices of some Glencore
bonds fell as much as 25%, a large drop for a company that still
commands investment-grade ratings.
"I've never seen bonds react so violently to a research report,"
said Tim Doubek, senior portfolio manager at Columbia Threadneedle
Investments, which oversees about $500 billion.
Hewlett-Packard Co. could represent another test. The company is
prepping a sizable bond sale that was expected to sell as early as
Monday, some investors and analysts said. H-P could still sell the
bonds later in the week.
An H-P spokeswoman declined to comment. Representatives for
Westfield and Santander didn't respond to requests for comment.
CBL pulled its bond sale "in light of today's capital-market
conditions, " the company said in a statement. "We decided to
postpone the offering until market conditions become more
favorable."
Corporate-debt markets had been consistently wide open in recent
years, as investors bet that slow but steady economic growth in the
U.S. would support corporate earnings.
Monday's events come after companies in the junk-bond market,
where companies have lower credit ratings, were forced last week to
increase yields on new debt sales. Altice NV paid higher yields on
a bond offering backing its purchase of Cablevision Systems Corp.
and had to reduce the size of its deal from $6.3 billion to $4.8
billion. Olin Corp. also reduced the size of its bond sale and
boosted interest payments to fund its acquisition of Dow Chemical
Co.'s chlorine-products unit.
Junk bonds, which are viewed as a more sensitive indicator of
economic conditions because the companies are more indebted and
have less cushion to withstand a downturn, logged a poor day
Monday. The SPDR Barclays High Yield Bond ETF was down about 1.4%
on the day, almost as bad as the 1.9% drop in the Dow Jones
Industrial Average stock benchmark.
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(END) Dow Jones Newswires
September 28, 2015 19:09 ET (23:09 GMT)
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