Junk Bond Sales Drop as Credit Risk Rises in Europe Amid Slump
Sales of high-yield corporate bonds in Europe dropped this week to the lowest in more than a month as the cost of insuring the debt rose and the euro-area recession extended to a record sixth quarter.
German pharmaceutical wholesaler Phoenix Pharmahandel GmbH & Co KG, Greek refrigerator equipment supplier Frigoglass SA, and Italian cement maker Italcementi SpA (IT) sold a total 700 million euros ($900 million) of junk bonds, the least since the week ending April 12, according to data compiled by Bloomberg. The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with speculative-grade ratings rose five basis points this week to 387.
Issuance slowed as a report showed the euro-area economy shrunk more than economists forecast in the first quarter. The average yield investors demand to hold euro-denominated junk bonds has risen five basis points since reaching an all-time low of 5.01 percent on May 10, Bank of America Merrill Lynch index data show.
“We have been really full up on supply in high yield as issuers have made use of the low interest rate environment to refinance at low coupons,” said Priya Viswanathan, a credit analyst at Societe Generale SA in Bangalore.
Companies sold a record 42.2 billion euros of junk bonds in Europe this year, Bloomberg data show. Phoenix Pharmahandel raised 300 million euros from a sale of seven-year bonds paying 3.125 percent, the lowest coupon from a non-financial high-yield company since Fresenius SE offered 2.875 percent for 7 1/2-year notes, Bloomberg data show. The German medical services company raised 500 million euros in January through its Fresenius Finance BV unit.
Standard & Poor’s and Fitch Ratings both rank Phoenix Pharmahandel BB, two levels below investment grade, and rate Bad Homburg, Germany-based Fresenius one step higher at BB+.
Frigoglass (FRIGO) was the third non-financial Greek company to raise debt this year, lifting corporate bond sales from the bailed-out nation to the most since 2008, according to Bloomberg data. The Athens-based company sold 250 million euros of five-year securities that were priced to yield 8.25 percent. The debut followed sales from Hellenic Petroleum SA, the nation’s largest refiner, and Hellenic Telecommunications Organization SA, the biggest phone company.
Italcementi added 150 million euros to notes due February 2018 that were priced to yield 340 basis points more than swaps, data compiled by Bloomberg show.
“Risk markets were a bit weaker this week,” said Martin Reeves, head of high yield at Legal & General Investment Management, responsible for about $2.45 billion of assets. “But we had a lot of high-yield issuance before this week and I expect sales will pick up again from here.”
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