May 1 (Bloomberg) -- European companies sold 94.2 billion euros ($147 billion) of bonds in the busiest April on record as borrowers took advantage of the first drop in interest costs in six months to raise capital.

Sales jumped from 44.1 billion euros in March and 50.6 billion euros in April 2007, according to data compiled by Bloomberg. Companies rushed to borrow as the extra yield investors demand to buy investment-grade bonds in euros rather than government debt fell to 166 basis points from a decade-high of 191 basis points in March, Merrill Lynch & Co. indexes show.

Deutsche Bank AG, UBS AG and JPMorgan Chase & Co. led 78.5 billion euros of bonds sold by banks seeking to replenish capital eroded by losses resulting from the collapse of the U.S. subprime mortgage market. Power company Iberdrola SA raised 1.75 billion euros yesterday in the biggest sale by a Spanish non- financial company in more than two years and Groupe Danone SA issued its largest bond since 2001, also at 1.75 billion euros.

``The tone in the market changed,'' said Mehernosh Engineer, a credit strategist at BNP Paribas SA in London. ``It's a case of getting deals done while things are good.''

Companies are rushing to borrow as $231 billion raised in bank share sales worldwide and more than $1 trillion pumped in the financial system by central banks ease the credit squeeze.

Sales in April were the highest for any month since the 102 billion euros issued in June, Bloomberg data show.

Credit-Default Swaps

Bank losses and writedowns caused sales in the first quarter to plunge 54 percent to 137 billion euros, the slowest start to a year since 2002, as investors shunned all but the safest government debt.

The Federal Reserve-brokered takeover of Bear Stearns Cos. in March and accelerated lending to banks fueled optimism financial firms would weather the crisis.

The cost of protecting European investment-grade bonds from default fell the most in at least four years in April, according to Deutsche Bank. Credit-default swaps on the benchmark Markit iTraxx Europe index of 125 companies dropped to 72 basis points from 120, Bloomberg data show.

``Probably the worst of the financial crisis is over,'' said Jim Reid, Deutsche Bank's London-based head of credit strategy. ``Bank spreads have been very well supported by the bank recapitalization story.''

Debt Speculation

Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A rise indicates deterioration in the perception of credit quality; a decline, the opposite.

A basis point on a credit-default swap contract protecting 10 million euros of debt from default for five years is equivalent to 1,000 euros a year.

All of the bonds sold last month are ranked investment grade. Europe's 72 billion-euro market for high-risk, high-yield bonds has been shut since August. The securities, also known as junk bonds, earned investors returns of 5.77 percent in April, the best performance since 2001, Merrill data show.

``Sentiment has improved,'' said Willem Sels, head of credit strategy at Dresdner Kleinwort in London. ``There seems to be a self-reinforcing process going on as well. As issuance goes well, sentiment improves further.''

JPMorgan Sale

JPMorgan, the third-largest U.S. bank, sold 2 billion euros of 5.25 percent five-year bonds at a yield of 94 basis points more than the benchmark mid-swap rate this week.

Lehman Brothers Holdings Inc., the fourth-largest U.S. securities firm by market value, sold 500 million pounds ($989 million) of 7.875 percent 10-year bonds yesterday yielding 315 basis points more than similar-maturity U.K. government debt, Bloomberg data show.

``The level is consistent with where investment banks are trading but wide compared to history,'' Lehman's international treasurer Carlo Pellerani said in a telephone interview yesterday from the bank's offices in London. ``This improves diversification of our sterling funding and is a statement of trust by investors.''

Lehman last year sold 300 million pounds of bonds due 2013 at a spread of 83 basis points. A basis point is 0.01 percentage point.

Intesa Sanpaolo SpA, Italy's second-biggest bank, sold 3 billion euros of 5 percent three-year bonds yielding 85 basis points more than the benchmark mid-swap rate on April 15, Bloomberg data show.

Safety in Utilities

Iberdrola's bond sale included 1 billion euros of 5.125 percent five-year bonds yielding 83 basis points more than midswaps. Spain's second-largest power company has 7 billion euros of loans coming due this year that were used to finance its acquisition of Scottish Power Plc, Bloomberg data show.

``Investors still recognize that the utilities sector is a relatively safe sector in the turbulent markets that we've seen,'' Andrew Moulder, a senior analyst at CreditSights Inc. in London, said in a telephone interview.

RTE EDF Transport SA, owned by Electricite de France SA, Europe's biggest power producer, cut its borrowing costs in a sale of 1.25 billion euros of 4.875 percent seven-year bonds yielding 87.6 basis points more than similar-maturity government debt, Bloomberg data show. That compares with a spread of 100 basis points on 1.5 billion euros of 10-year bonds sold in January.

Deutsche Telekom AG, Europe's biggest telephone company, sold 1.5 billion euros of 5.75 percent seven-year notes to yield 155 basis points more than the mid-swap rate, the Bonn-based company's largest euro-denominated issue since October 2006.

Danone, the owner of Evian water and Activa yogurt brands, borrowed to refinance a loan used to help fund its takeover of Dutch baby-food maker Royal Numico NV last year.

To contact the reporter on this story: Shelley Smith in London at ssmith118@bloomberg.net

Last Updated: May 1, 2008 08:57 EDT