Jim Casey, co-head of global debt capital markets at JPMorgan Chase & Co., says 2012 was so spectacular that it deserves a moniker: the Year of Refinancing.
The cost of borrowing for companies fell to a record low of 3.24 percent last year, spurring the flood of deals. With rates so depressed, corporations, which typically refinance debt that matures in one or two years, issued replacement bonds for credit that’s due in four years. Casey says that doubled the potential number of clients for bankers, Bloomberg Markets reports in its April issue.
“Rates were extremely attractive for issuers, and investors continued their search for yield, making for an ideal combination,” says John Cokinos, New York-based head of leveraged finance capital markets and syndicate at Bank of America Merrill Lynch.
Corporate and sovereign borrowers issued $3.69 trillion in debt in 2012, generating $19.2 billion of fees for banks, both records, according to data compiled by Bloomberg. Investor demand for debt was so strong that banks were able to revive collateralized loan obligations, the bundles of securities that helped inflate the credit bubble that burst in 2008. About $55 billion in CLOs were sold last year compared with $13 billion in 2011, Casey says.
JPMorgan Chase earned the top spot in Bloomberg Markets 2012 ranking of bond underwriters, marking the fifth straight year that the bank held or shared the No. 1 position. The firm earned $1.51 billion in fees, the most since Bloomberg began tracking the figures in 2003. Bank of America took No. 2 while Citigroup Inc. placed third.
The surge in underwriting has carried over into this year. Companies, uncertain about whether politicians in Washington would make progress on resolving the fiscal stalemate later in 2013, moved their bond sales up to January, says John Hines, head of investment-grade syndicate at Wells Fargo & Co. About $112 billion in investment-grade bonds were issued in January compared with $79 billion during the same month last year, he says.
“We’re seeing a very robust start to the year,” says Hines, who’s based in Charlotte, North Carolina.
Even as central banks from Washington to Frankfurt hold down interest rates to spur growth, refinancing probably will lose some of its steam in 2013, Cokinos says. Andy O’Brien, co-head with Casey of debt capital markets at JPMorgan Chase, says bankers are expecting that an uptick in M&A and leveraged buyouts will drive debt markets.
Banking on M&A
“Our level of activity is going to depend on an active M&A and leveraged-buyout market,” says Richard Zogheb, New York-based co-head of capital markets origination for the Americas at Citigroup.
Dell, the personal computer maker, said on Feb. 5 that it had agreed to go private in a $24.4 billion LBO. The company, which is being purchased by Silver Lake Management and founder Michael Dell, is seeking $13.8 billion in loans.
It’s the biggest debt-financed deal since 2007 -- and a sign that the boom that made last year so strong for bankers like Casey may run through 2013.