Bond Market Cracks Open for Blue-Chip Companies -- Then Slams Shut
March 18 2020 - 1:24PM
Dow Jones News
By Sebastian Pellejero and Liz Hoffman
Goldman Sachs Group Inc. bankers were marketing bonds for
Verizon Communications Inc. and Exxon Mobil Corp. on Tuesday when
investors countered with an offer: If Goldman were interested in
raising some cash for itself, they would be interested in
buying.
Goldman did just that, issuing $2.5 billion of bonds due in 2030
at 3 percentage points over a government rate. It was a player two
ways -- issuer and underwriter -- when the window briefly cracked
open for blue-chip companies to raise cash by selling bonds. By
Wednesday morning, the window had shut again, with far fewer deals
in the market, bankers and investors said.
Companies issued around $28 billion in bonds Tuesday. Exxon sold
$8.5 billion and PepsiCo Inc. sold $6.5 billion, and both said they
would use the proceeds to pay off shorter-term debt known as
commercial paper. There were zero deals on Monday.
The ability of companies -- particularly big, creditworthy ones
-- to keep funding their operations is a key measure of the turmoil
that has gripped markets in recent days as the coronavirus outbreak
worsens. The picture is bleaker for low-rated companies; high-yield
bond issuance has virtually stopped.
"Any day the markets are functioning is a good day," said Tom
Murphy, head of investment-grade credit at Columbia Threadneedle.
"It's a healthy development for investors to get a sense for where
paper really clears, and it's good for companies who need access to
liquidity."
Former Federal Reserve heads Ben Bernanke and Janet Yellen said
Wednesday that the central bank should consider purchasing highly
rated corporate bonds, which central banks in Europe, Japan and the
U.K. already have done.
The Fed would need to ask Congress for that authority. So far,
the central bank has limited its market purchases to government
bonds and commercial paper. The moves, unprecedented since the 2008
financial crisis, are meant to provide liquidity and free up banks
to lend.
In a sign of worry over whether they will be able to raise fresh
debt, big companies are drawing down their credit lines from banks.
Borrowers include names hard-hit by the downturn such as Boeing
Co., diner chain Denny's Corp., Southwest Airlines Co., Wynn
Resorts Ltd. and Marriott International Inc., which on Tuesday
started furloughing thousands of employees.
Since March 11, 16 U.S. companies have said they plan to draw
down more than $39 billion on their credit lines, according to Bank
of America Corp. data.
Just 40 companies with investment-grade credit ratings have sold
bonds in March, according to Dealogic, the fewest since at least
2018.
Companies with little cash compared to near-term debt -- a sign
that they may need to borrow -- include food processors Archer
Daniels Midland Co. and Bunge Ltd., as well as FedEx Corp and
truck-rental firm Ryder System Inc., according to Bank of America.
The bank itself sold $3 billion of 30-year notes charging around 4%
on Tuesday.
Write to Sebastian Pellejero at sebastian.pellejero@wsj.com and
Liz Hoffman at liz.hoffman@wsj.com
(END) Dow Jones Newswires
March 18, 2020 13:09 ET (17:09 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
Wynn Resorts (NASDAQ:WYNN)
Historical Stock Chart
From Aug 2024 to Sep 2024
Wynn Resorts (NASDAQ:WYNN)
Historical Stock Chart
From Sep 2023 to Sep 2024