This is interesting since one of the main reasons for investing is US HY is that it is a “domestic market” not affected as much by the problems in Europe. While still only a portion of the market, European based issuers are increasing their presence in the indices bit by bit and many of the HY companies are more global than they are given credit for.
HY nat gas producers remain of particular interest. Cheap gas is doing wonders for the economy, and drilling for it has been one of the best job creators yet these companies are struggling and nat gas is starting with another weak session. There was some hope last week on LNG with activity in Cheniere adding to the hope, but concerns that it is a long way off are valid, and concerns that other parts of the world will discover/exploit their own shale gas are also out there.
Europe’s Junk Borrowers Tap U.S. at Record Pace: Credit Markets
2012-03-05 10:41:16.383 GMT
By Lisa Abramowicz and Kristen Haunss
March 5 (Bloomberg) — European high-yield companies are
tapping the U.S. bond market at a record pace as investors
funnel unprecedented volumes of cash into dollar-denominated
junk debt funds and a sovereign-debt crisis restricts bank
lending in the region.
Issuers led by Germany’s Fresenius Medical Care AG have
sold $8.8 billion of the debt in dollars this year, following
$16.4 billion in all of 2011, according to Morgan Stanley. The
portion of European speculative-grade offerings sold in dollars
has soared to 44 percent this year, up from 31 percent in 2011
and double the pace in 2010.
Borrowers in Europe, where political leaders are struggling
to contain a fiscal contagion that led to bailouts of Greece,
Portugal and Ireland, are seeking lower financing costs by
marketing to investors in the U.S. Relative yields on European
junk-rated debt average 222 basis points more than on similarly
rated U.S. bonds, compared with 77 in 2011, Bank of America
Merrill Lynch index data show.
“It stands to reason if you are a European issuer, you are
going to look opportunistically to access the most favorable
market,” William Hughes, the head of North American leveraged
syndicate at Citigroup Inc., said in a telephone interview.
“For many issuers that decision has led them to dollar
denominated high-yield bonds and leveraged loans.”
Schaeffler AG’s two-part bond offering on Feb. 2 was split
between euro and dollar portions, both maturing in five years
with coupons of 7.75 percent, according to data compiled by
Bloomberg. While the German rolling bearings manufacturer’s 800
million euro slice yields 6.5 percent, its $600 million dollar
piece yields 6.1 percent.
Dollar issuance from European high-yield companies may
reach $30 billion this year, with most of the proceeds used to
repay existing debt, Barclays Capital analysts Sherif Hamid,
Gautam Kakodkar and Darpan Harar wrote in a report dated March
2. The total volume is “highly variable,” depending in part on
continued investor demand, they wrote.
Elsewhere in credit markets, the extra yield investors
demand to hold corporate bonds globally rather than government
debentures declined for an 11th week, reaching the lowest level
in more than six months. The cost of protecting U.S. company
debt from default fell, touching the lowest level since July.
Prices on leveraged loans rose.
Relative yields on company bonds from the U.S. to Europe
and Asia contracted 9 basis points last week to 206 basis
points, or 2.06 percentage points, the lowest level since Aug.
10, according to Bank of America Merrill Lynch’s Global Broad
Market Corporate Index. Yields on the debt fell to 3.386 percent
from 3.502 percent on Feb. 24.
The Barclays Capital Global Aggregate Corporate Index has
lost 0.26 percent this month, paring the gain for the year to
Wells Fargo & Co., the largest U.S. bank by market value,
led $88.3 billion of corporate bond offerings worldwide last
week, a 2 percent decrease from $90.2 billion in the period
ended Feb. 24, data compiled by Bloomberg show.
The San Francisco-based lender’s $2.5 billion of 3.5
percent, 10-year notes rose 0.68 cent from their issue price on
March 1 to 100.466 cents on the dollar, according to Trace, the
bond-price reporting system of the Financial Industry Regulatory
Bonds of Charlotte, North Carolina-based Bank of America
Corp. were the most actively traded dollar-denominated corporate
securities by dealers last week, with 639 trades of $1 million
or more, Trace data show.
Default Swaps Fall
The Markit CDX North America Investment Grade Index, which
investors use to hedge against losses or to speculate on
creditworthiness, decreased 2 basis points last week to a mid-
price of 93.9 basis points, according to Markit Group Ltd. The
index reached 92.8 on March 1, the lowest level since July 22 on
a closing basis.
The Markit iTraxx Europe Index of 125 companies with
investment-grade ratings increased two to 133, according to
JPMorgan Chase & Co. at 10:30 a.m. in London.
The indexes typically fall as investor confidence improves
and rise as it deteriorates. Credit-default swaps pay the buyer
face value if a borrower fails to meet its obligations, less the
value of the defaulted debt. A basis point equals $1,000
annually on a swap protecting $10 million of debt.
Leveraged Loans Rise
Prices on leveraged loans rose for the 10th time in 11
weeks, with the Standard & Poor’s/LSTA U.S. Leveraged Loan 100
Index increasing 0.29 cent to 93.49 cents on the dollar. The
measure, which tracks the 100 largest dollar-denominated first-
lien leveraged loans, reached this year’s high of 93.55 on Feb.
Leveraged loans and high-yield bonds are graded below Baa3
by Moody’s and lower than BBB- by S&P.
In emerging markets, relative yields fell for a seventh
straight week, narrowing 17.2 basis points to 347.7 basis
points, according to JPMorgan Chase & Co.’s EMBI Global index.
The measure has declined from 489.8 on Oct. 4, the highest since
Investors have poured $13.5 billion into U.S. junk-bond
funds this year, compared with $15.6 billion for all of 2011,
JPMorgan researchers led by Peter Acciavatti wrote in a March 1
report. Nine of the 10 largest weekly inflows on record into
American speculative-grade mutual funds have occurred since
October, according to the report, which cites data from Lipper.
Investors are demanding 733 basis points more than
government debt to own European junk notes, compared with 597
basis points for U.S. speculative-grade notes, Bank of America
Merrill Lynch index data show.
The gap between the relative yields was 310 basis points at
the beginning of the year. As recently as June, spreads on
European junk bonds were tighter than those in the U.S.
Fresenius, the world’s biggest provider of kidney dialysis,
sold $1.5 billion of bonds in dollars on Jan. 17 consisting of
$800 million of 5.625 percent notes due July 2019 and $700
million of 5.875 percent debt maturing in January 2022,
Bloomberg data show. The company is rated Ba1 by Moody’s and BB+
at S&P, both one level below investment grade.
Proceeds may be used to help fund the Bad Homburg, Germany-
based company’s purchase of Liberty Dialysis Holdings Inc. and
repay debt, according to a person with knowledge of the sale,
who declined to be identified citing lack of authorization to
“European companies have been able to borrow in dollars at
lower yields than they can borrow in euros,” Andrew Sheets,
head of European credit strategy at Morgan Stanley in London,
said in a telephone interview. “Strong inflows into U.S. high
yield have created a healthy appetite for new bond supply.”
Yields in the U.S. average 7.53 percent, compared with 8.77
percent in Europe. The gap in yields, at 1.2 percentage points,
is up from 0.37 percentage point a year ago, Bank of America
Merrill Lynch indexes show.
European borrowers raised more than $6 billion of loans in
the U.S. this year through Feb. 15, compared with $1.33 billion
in the same period of 2011, Bloomberg data show.
Greece’s debt restructuring is prompting European banks to
curtail lending as political leaders accelerate payments to the
planned permanent bailout fund. Lending to non-financial
borrowers fell 1 percent in Ireland and 0.7 percent in Spain
compared with the previous month, according to a Royal Bank of
Scotland Group Plc report dated Feb. 27.
“Lending activity in the periphery will remain stagnant at
best, in our view, as banks continue to struggle with
deleveraging, recapitalizations and capital flight risk,” RBS
analysts led by Alberto Gallo in London wrote.
The cost of credit-default swaps on Greek government debt
on March 2 signaled a 99 percent chance the nation will default
within five years, according to CMA. Swaps were quoted at $7.6
million in advance and $100,000 annually to insure $10 million
of debt by BNP Paribas SA and CMA.
“We do expect a bias for certain companies, particularly
those that have certain exposures in the U.S., to continue to
take advantage of what is still a more liquid financing
market,” said Michael Moravec, European head of high-yield
capital markets at Barclays Capital in London.
For Related News and Information:
Credit market watch: NI CMW <GO>
Top loan news: TOP LOAN <GO>
Top bond news: TOP BON <GO>
Loan new issue monitor: NIM14 <GO>
Bond new issue monitor: NIM3 <GO>
–With assistance from Hannah Benjamin in London. Editors: Alan
Goldstein, Faris Khan
To contact the reporters on this story:
Lisa Abramowicz in New York at +1-212-617-3503 or
Kristen Haunss in New York at +1-212-617-3538 or
To contact the editors responsible for this story:
Alan Goldstein at +1-212-617-6186 or
Faris Khan at +1-212-617-8759 or