The Biggest Winners From Draghi's Stimulus May Just Be U.S. CEOs

  • American companies lead euro-zone bond sales for first time
  • `Not a one-shot' phenomenon as monetary policies diverge

American companies are increasingly looking like some of the biggest beneficiaries of Mario Draghi’s unprecedented efforts to stimulate Europe’s economy.

U.S. companies are for the first time the biggest borrowers of euro-denominated corporate bonds, issuing a record 87.7 billion euros ($93.49 billion) of debt, according to data compiled by Bloomberg. Companies from Apple Inc. to McDonald’s Corp. have made up a fifth of total new issuance in the market, more than any European country and up from just 1.5 percent five years ago.

Draghi’s easy-money policies are making it cheaper than ever for corporate America to cross the Atlantic to issue debt. That’s because the European Central Bank is pledging to boost stimulus just as Federal Reserve policy makers are prepared to raise interest rates for the first time in a decade. The difference between borrowing costs in the U.S. and Europe has widened to the most ever, and few see the gap closing anytime soon.

"It’s not a one-shot phenomenon,” said Marco Baldini, the London-based head of European corporate and sovereign, supranational and agency syndicate at Barclays Plc, the biggest arranger of bonds from companies domiciled outside the euro area. American companies have become such a big part of the European market that investors there have started to ease policies limiting the amount of foreign-issuer debt they can buy, he said.

Investors demand an average of 1.33 percent to hold euro-denominated bonds sold by investment grade companies, Bank of America Merrill Lynch indexes show. That compares with 3.52 percent for similarly rated dollar bonds.

The difference in borrowing costs between U.S. and European debt rose to 2.17 percentage points on Nov. 17, the highest ever.

U.S. companies, already selling a record pace of debt at home, contributed to a euro bond sales tally that by the middle of 2015 had already dwarfed all of last year’s record issuance, according to data compiled by Bloomberg.

The next round of debt sales won’t be limited to America’s blue-chip borrowers.

“So far the U.S. issuers that have come in euros this year have been high-quality names with the ability to issue opportunistically,” said Gordon Shannon, a portfolio manager at TwentyFour Asset Management LLP, which has 5 billion pounds ($7.6 billion) under management. “But as the U.S. market becomes increasingly more saturated by the weight of issuance, we’re seeing a wider variety of U.S. names issuing in euros.”

BorgWarner Inc., a U.S auto-part maker, sold 500 million euros in inaugural notes in the single currency this month, according to data compiled by Bloomberg.

Currency Swaps

Selling debt in euros isn’t practical for all U.S. companies because converting the proceeds into dollars can be prohibitively expensive for less well-known and smaller issuers, according to Wells Fargo & Co. While cross-border borrowings would prove attractive for well-known names “the debt footprint for only a small handful is large enough,” analysts led by George Bory and Nathaniel Rosenbaum wrote in a Nov. 6 note to clients.

Cross-currency basis swaps expiring in five years have widened to 41.5 basis points below the euro interbank offered rate, or Euribor, nearly three times more than where they were at the start of the year. And U.S. company debt issued in euros has lost 0.054 percent this year, underperforming the 0.069 percent gain in the broader Euro Corporate index, Bank of America Merrill Lynch Index data shows.

Priceline Group Inc., the online travel agent, scheduled meetings with investors in Europe on Monday and Tuesday for a possible debt sale, according to a person with knowledge of the matter.

“There are still headwinds for European growth, which suggests the ECB needs to do more,” said Jack McIntyre, a money manager who oversees $58 billion at Brandywine Global Investment Management LLC in Philadelphia. That makes it “still attractive to issue away from the U.S.”

(A previous version of this story incorrectly listed Magna International Inc. as a U.S. company.)

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