Wall Street’s Bond Machine Fires Back Up as Greece Tumult Fades

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Just a week after turmoil from Greece and China put a lid on corporate bond deals, Wall Street’s underwriters are springing back into action.

CVS Health Corp.’s $15 billion bond sale backing its takeover of Omnicare Inc. and Target Corp.’s pharmacies and clinics came on the heels of Charter Communications Inc.’s $15.5 billion offering on July 9 to help finance its purchase of Time Warner Cable Inc. In the market for junk-rated debt, where issuance all but came to a halt last week, Solera Holdings Inc. and Eldorado Resorts Inc. started marketing notes to fund acquisitions and refinance borrowings.

Corporate bond sales are showing signs of recovery after plunging 40 percent in June to $123 billion. With Greece close to obtaining its third international bailout and Chinese equities rebounding 13 percent in three days, corporate borrowers in the U.S. are starting to focus again on locking in low borrowing costs before the U.S. central bank lifts interest rates.

“Taking concerns about Greece out of the marketplace allows rates to go up and brings the Federal Reserve back into play,” said Timothy Anderson, who helps oversee $5 billion as chief fixed-income officer at RiverFront Investment Group.

Euro Sale

The market is also reawakening in Europe, where the longest drought in junk-bond sales this year is set to end with SoftBank Group Corp. marketing bonds in euros maturing in seven, 10 and 12 years. The Tokyo-based mobile carrier’s sale would be the first euro-denominated deal in Europe’s high-yield market since June 26.

CVS got about $45 billion of orders for its bond offering, allowing the drugmaker to lower yields, according to a person with knowledge of the transaction.

The longest and biggest portion of the sale was $3.5 billion of 5.125 percent, 30-year securities that yielded 1.9 percentage points more than similar-maturity Treasuries, according to data compiled by Bloomberg. That’s 0.25 percentage-point less than what the company initially proposed, said the person, who asked not to be identified because the information isn’t public.

JPMorgan Chase & Co. is planning to sell benchmark 10-year debt Tuesday, joining PepsiCo Inc., which is tapping the bond market for a second time this year to sell debt in as many as five parts, the longest portion of which will be due in 30 years, according to a person with knowledge of the deal.


“You’re seeing this influx of mega-offerings, and what’s so interesting is that it seems that demand for these deals has been pretty high, despite their size,” said Jody Lurie, a corporate credit analyst at Janney Montgomery Scott LLC in Philadelphia.

Junk-rated companies are also beginning to test investor appetite after issuance came to a halt last week.

Solera, which makes automobile claims processing software, is selling $850 million in bonds to expand its business. The securities for the Westlake, Texas-based company are rated B1, or four levels below junk, by Moody’s Investors Service. Standard & Poor’s grades them a level higher.

Eldorado Resorts, a Reno, Nevada-based casino operator, is marketing $375 million of notes that will go to refinance debt. The company is B2, or five levels below junk by Moody’s. S&P grades it at an equivalent B.

On Hold

Others are waiting for the dust to settle even more. Imperial Capital LLC delayed two junk-bond offerings on July 13 in response to market turmoil triggered by Greece’s potential euro exit, according to a person with knowledge of the matter.

The boutique investment bank had been marketing bonds from My Alarm Center and Globo Plc, but pushed back the sales, the person said. Imperial plans to revive the deals when the market is more welcoming to junk-rated debt offerings.

While corporate bond yields climbed to 4.14 percent Monday from 3.6 percent on April 16, they are still less than the 5.5 percent average over the past 10 years, according to Bank of America Merrill Lynch Indexes.

Steps taken by Chinese authorities to stem a stock market rout may be insufficient, leaving the U.S. corporate bond market vulnerable to a renewed selloff, according to Joe Mayo, who heads credit research at Conning & Co.

Shadow Calendar

That may not be enough to halt bond sales from companies that need to finance acquisitions.

Halliburton Co. has $8.6 billion in bridge loan commitments to partially pay for its $34.6 billion acquisition of oilfield-services provider Baker Hughes Inc. Bridge borrowings are typically replaced by bonds.

Danaher Corp. may issue $2 billion in bonds to finance its takeover of water-systems maker Pall Corp, according to Bloomberg Intelligence.

“There has been some shadow calendar building that we were expecting to come because the market feels a little bit better than it has in the last few weeks,” said John McClain, a money manager at Diamond Hill Capital Management Inc. in Columbus, Ohio, which oversees $17 billion. “People are looking to put money to work.”

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