GM Joins March of Corporate Titans Back Into Credit Marketsby
As global rout slows, well-known names test investor appetite
`Money looking to be put to work' while the market stabilizes
Corporate titans continued their return to the the U.S. debt markets on Thursday as investors globally showed a renewed willingness to take on risk.
Highly rated and well-known companies such as General Motors Co., Philip Morris International Inc. and the finance arm of Honda Motor Co. all sold debt Thursday. Two days earlier, blue-chippers including Apple Inc., International Business Machines Corp. and Toyota Motor Corp. raised more than $23 billion in bonds in what turned out to be the second biggest day for debt sales this year.
Even so, sales of U.S. corporate credit are off to the worst start to a year since 2010. The reason is a global economic rout that spread across asset classes and ensnared credit markets, pushing the extra yield over Treasuries that investors demand to hold companies’ bonds to the widest levels in four years. That extra premium, called a spread, is now narrowing and luring buyers back into the market, as the turbulence has eased since last week.
“There was a lot of money looking to be put to work that was waiting for the market to stabilize, and this is still very cheap money for issuers,” said Jack Flaherty, who helps manage $127 billion at GAM Holdings AG. “We’ve had a few good days, but we are not off and running as there are still a lot of problems out there. So the deals are offering good concessions and the names that are coming are fairly well known.”
Phillip Morris sold $2 billion in debt in a three-part offering for general corporate purposes, with the longest-dated portion being $750 million in 10-year notes, yielding 1.1 percentage points more than comparable government debt, according to Bloomberg data. General Motors issued $1.25 billion in debt in two parts, including 30-year bonds that yielded 4.15 percentage points more than comparable debt.
U.S. companies sold $26.1 billion in debt this week through Wednesday, according to data compiled by Bloomberg. Borrowing costs for investment-grade rated issuers are still only about one percentage point higher than the record lows reached in 2013, even as the yield spread rises to the highest level since 2012, according to Bank of America Merrill Lynch Indexes.
“There has been a big selloff and the dust is beginning to settle -- there is some value to be had in the midst of the extreme concern out there,” said James Sarni, a managing principal at investment manager Payden & Rygel, with $85 billion in assets under management. “Issuance will pick up as calmer heads prevail.”
Apple’s nine-tranche $12 billion deal on Feb. 16, seen by many investors as a sign of rising investor demand, has rallied in all tranches since the sale, according to Bloomberg data. Still, even the technology giant saw its borrowing costs rise, paying 4.65 percent on its $2.5 billion 30-year bond sale. That compares with the 3.75 percent the company’s 30-year debt was trading at a year ago, according to Bloomberg data.
European companies have sold about 22 billion euros ($24 billion) of bonds this week, according to data compiled Bloomberg. Sales are down 27 percent this year from a year ago, even as Honeywell International Inc. sold 4 billion euros of bonds on Feb. 15 in the biggest corporate sale in the currency this year.
“We are now likely at the early stages of a significant rally in high-grade spreads,” Bank of America Corp. analysts led by Hans Mikkelsen wrote in a note to clients. “Corporate-bond supply is another source of uncertainty that can contribute to spread volatility, but long-term interest rates well off the lows and a more positive environment for risk assets mitigate that to some extent.”