Companies, Raise Money While You Can
The post-election rally has thrown open a window for corporate fundraising. It may not stay that way for long.
Some of the market angst around Donald Trump's surprise White House victory was brief. Equities have surged. Measures of volatility have tumbled, and that is propitious for fundraising.
However, longer-dated bonds are in for some long-term pain, and it shows.
These dynamics coincide with a pent-up supply of stock issuance, in particular in Brexit-hit European markets. It looks like a similar story in the credit markets. The fourth quarter is usually a bonanza for issuance but corporate treasurers have limited their participation as liquidity dried up.
Companies needing funds will want to exploit these surprisingly benign conditions while they can. The same will go for private-equity firms looking to sell down recent IPOs.
Stock investors who were sitting on big cash balances will be desperate for ways to catch up with the rally and primed to buy any placing offered at a discount. And if the initial reaction to the Trump victory was for benchmark government bond yields to head higher, it may not be too long before credit spreads start heading that way too.
The European Central Bank's bond-buying program has kept corporate bonds spreads stable, but that may be deceptive. The ECB could say at its December meeting that bond purchases won't be fully extended at the same pace beyond March. Even if tapering starts later, the prospect of gradually stepping back from the program at some point is real. That could see spreads widen. Issuers will want to move before that happens.
Contrast this with the aftermath of Brexit. Stocks collapsed and were still down a week later. Issuers had to swallow low prices to get shares sold: Abertis Infraestructuras SA succeeded in shifting 814 million euros ($900 million) of new shares five days after the vote, but at a 9 percent discount.
The current conditions may not last. The obvious threat is a rise in volatility ahead of the Italian referendum on constitutional reform on Dec. 4, with the plebiscite widely seen as a confidence vote in premier Matteo Renzi. The ECB meets a fews days later.
For now, the window is open. Time to jump through it.
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Jennifer Ryan at email@example.com