Corporate bond sales tumbled this week to the lowest since May as increasing concern over Europe’s debt crisis and the outbreak of fighting between North and South Korea deterred issuers.
Potash Corp. of Saskatchewan Inc., the world’s largest fertilizer company, paced $2.89 billion of corporate debt issuance, while Performance Food Group Co., the food distributor owned by Blackstone Group LP, led seven companies announcing withdrawn offerings, according to data compiled by Bloomberg.
Ireland’s decision to request emergency aid from the European Union and the International Monetary Fund, and the firing of shells by North Korea at South Korea’s Yeonpyeong Island near the two nations’ western maritime border damped risk appetite as domestic and overseas investors slowed issuance, Ron Quigley, managing director and head of syndicate global capital markets at Aladdin Capital LLC, said in a telephone interview.
“The main driver here is the fear of the plague of the European debt crisis,” Stamford, Connecticut-based Quigley said. “On top of domestics, the Yankee sector has drastically cut issuance recently on concern that there may be a need for further bailouts for euro sovereigns, creating bigger debt burdens for the support nations providing the funds.”
‘Adverse Market Conditions’
Performance Food cited “adverse market conditions” for the decision to pull its proposed $550 million note sale, according to a person familiar with the transaction who declined to be identified. The Richmond, Virginia-based company joined Burlington Coat Factory Warehouse Corp., Ship Finance International Ltd., Spencer Spirit Holdings Inc., Vietnam National Coal-Mineral Industries Group, WII Components Inc. and Yuzhou Properties Co. in announcing $2.52 billion in pulled bond sales, Bloomberg data show.
Company bond offerings declined 87 percent from the five days through Nov. 19.
Potash sold debt to help pay for a planned stock buyback, according to a filing with the Securities and Exchange Commission. The bond offering, Saskatoon, Saskatchewan-based Potash’s first in 14 months, included $500 million each of seven-and 30-year debt, according to data compiled by Bloomberg. The sale led $1.34 billion of investment-grade corporate bond issuance this week.
The extra yield investors demand to own investment-grade debt instead of Treasuries rose 2 basis points from Nov. 19 to 177 basis points, according to Bank of America Merrill Lynch’s U.S. Corporate Master index. Yields were 3.87 percent, up from 3.84 percent last week. Yields touched 3.53 on Nov. 4, the lowest since the daily index was made available about 24 years ago.
Overall sales this week compare with $23.1 billion in the week ended Nov. 19, Bloomberg data show. Companies issued $90.6 billion of debt this month, compared with $81.1 billion in the corresponding portion of October and $97 billion in the first 25 days of November 2009, according to data compiled by Bloomberg.
“It’s possible to try to cram too much through too fast,” said Andrew Feltus, a money manager at Pioneer Investment Management Inc. in Boston whose $2.8 billion Pioneer High Yield Fund has outperformed 96 percent of its peers in the past month, according to data compiled by Bloomberg. “It would be nice to have a slowdown and have some time to sort things out. It’s been more triage than sitting back and trying to manage to your investment view.”
ClubCorp Club Operations Inc., the owner and operator of golf courses, country clubs and resorts, sold $415 million of eight-year senior unsecured notes at a spread of 820 basis points to lead $1.56 billion of junk-rated offerings, according to data compiled by Bloomberg.
“Buyers have a little more leverage now, as over the past month it has really been a seller’s game,” said Edward Meigs, a money manager at Dwight Asset Management Co. in Baltimore, who oversees $600 million of junk debt. “Buyers have pulled back a little bit, and clearly we’re just not seeing the same level of demand.”
The extra yield investors demand to own high-yield bonds instead of Treasuries rose 12 basis points to 593 basis points from Nov. 19, according to the Bank of America Merrill Lynch U.S. High Yield Master II Index. Yields on the debt fell to 7.7 percent from 7.8 percent last week.
High yield debt is rated below Baa3 by Moody’s Investors Service and BBB- by Standard & Poor’s. A basis point is 0.01 percentage point.
National Amusements Inc., the movie-theater and holding company controlled by billionaire Sumner Redstone, and Cambium Learning Group Inc. an educational-materials provider, are among companies planning at least $1.9 billion in U.S. bond sales, Bloomberg data show.
“I would expect an extremely slow run until the end of the quarter,” Quigley said. People are very happy to spend a more relaxed end of year and roll out the guns in the first quarter.”
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