Corporate Bond Sales in U.S. Fall 22% in Week With Shutdown

Sales of corporate bonds in the U.S. dropped 22 percent as issuers avoided tapping the market with Congress wrestling over the government’s borrowing limit and a partial shutdown.

Neiman Marcus Group, the luxury retailer being purchased by Ares Management LLC and the Canada Pension Plan Investment Board, and Chicago-based Wm. Wrigley Jr. Co. led sales of $18 billion, according to data compiled by Bloomberg. Offerings fell from $23.2 billion last week and compare with $21.6 billion in the similar period in 2012.

Issuance slowed with Standard & Poor’s forecasting the two-week closure that ended yesterday will reduce fourth-quarter economic growth by at least 0.6 percent. Lawmakers in Congress voted to fund the government through Jan. 15, and suspend the debt ceiling through Feb. 7, potentially setting up more rounds of political combat over taxes and spending.

“It’s not a permanent solution so I think we’re going to revisit these stress periods over the next few months,” Thomas Chow, a Philadelphia-based money manager at Delaware Investments who helps oversee about $135 billion, said in a telephone interview. “Risk sentiment has become more dependent upon political and macro developments than credit-specific risks.”

Political Risk

The extra yield investors demand to own corporate bonds rather than government debentures narrowed 4 basis points for the week through yesterday to 214 basis points, according to Bank of America Merrill Lynch index data. Yields decreased to 3.97 percent from 4.08 percent, and compare with a record-low 3.35 percent on May 2.

Neiman’s $1.56 billion sale of eight-year debt included $600 million of payment-in-kind toggle securities that pay 8.75 percent in cash or 9.5 percent if the Dallas-based retailer pays in the form of additional debt, Bloomberg data show. The securities are rated Caa2 by Moody’s Investors Service.

The bonds are the first PIK securities to be issued through an operating company for the purpose of funding a leveraged buyout since 2007, according to Marc Warm, the New York-based head of U.S. high-yield capital markets at Credit Suisse Group AG, which helped manage the offering. Sales of $5.1 billion of PIK toggle bonds this year through Aug. 31 were generally used to fund dividend payouts to private equity sponsors or for share repurchases, according to a Sept. 20 report from Moody’s.

Wrigley Offering

Mars Inc.’s Wrigley unit, the maker of Juicy Fruit and Altoids, issued $3 billion of securities in five parts maturing between 2016 and 2020, Bloomberg data show. The largest piece, $900 million of 3.375 percent, seven-year bonds priced at a relative yield of 135 basis points, were quoted yesterday at 101.8 cents on the dollar to yield 3.09 percent, according to prices compiled by Bloomberg.

Sales of investment-grade debentures reached at least $13.9 billion, compared with $13 billion last week and $13.6 billion in the similar period in 2012, Bloomberg data show. Offerings of speculative-grade bonds reached at least $4.1 billion, compared with $10.2 billion last week and $7.9 billion in the period last year.

High-risk, high-yield bonds are rated below Baa3 by Moody’s and lower than BBB- at Standard & Poor’s.

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