| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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Credit crunch halts European market for high-yield bonds |
By Anousha Sakoui
FT.com July 23 2008
A year ago on Wednesday, US-owned power company Intergen sold $1.875bn of junk bonds – it turned out to be the last high-yield deal to be sold in the young but seemingly flourishing European market.
No other deal has been seen since the credit crunch took hold – a worse issuance record over that time in Europe than for risky leveraged loans or even mortgage-backed bonds.
Globally, issuance of junk-rated debt has struggled but there have been some deals. The first half of this year saw $43bn of junk bonds sold compared with $121bn in the same period in 2007, according to Citigroup analysts, a 60 per cent fall.
But while many debt markets have continued to struggle since the credit turmoil erupted last summer, the complete hiatus in European high-yield bond markets is increasingly worrying for companies who rely on that market.
Billions of euros of such debt is due to mature in 2009 – €15.8bn according to data from Fitch Ratings and Bloomberg, but not all will need to be refinanced.
At the same time, the commercial banks that have traditionally provided much of the financing for such companies in Europe are still facing severe balance-sheet constraints that will restrict their lending capabilities.
“While issuance has been on hold in Europe over the past 12 months, this could become more of an issue in the future if the market doesn’t re-open, because the ability of bank lending to meet all financing needs of corporates, let alone sponsor-backed companies, is going to be even more challenging,” said Youssef Khlat, managing director Leveraged Finance at BNP Paribas.
Tanneguy de Carné, head of European leveraged capital markets at Société Générale, believes lower-rated issuers face the most difficult time for raising capital since the start of the decade.
“High yield for many companies was a convenient and predictable source of growth financing for the past six or seven years and it offered relatively attractive pricing,” said Mr de Carné. “Now they are having to scramble to find other ways to raise financing, either through their shareholders or banks, or by cutting back their capex.”
In the first half of last year, the European junk bond market had become fairly well established, allowing companies to raise more funding than previously and letting private equity funds secure record low financing rates for their companies. At the market’s peak, European issuance approached a rate of €30bn annually.
But at the time of Intergen’s deal, the market had already started to become volatile, with a number of issues being pulled in the preceding weeks. After the credit crunch, issuers found the market too expensive and investors did not see the value of buying new junk bonds when the secondary market offered them much more attractive deals at heavily discounted prices.
The markets for such bonds in both Europe and the US have been extremely volatile ever since and now there are growing concerns about the credit quality of some of these deals as harder economic times close in. Default rates have been slower to pick up than many analysts imagined at the beginning of this year, but companies are expected to struggle increasingly to repay their debt.
For example, NXP Semiconductors, which made one of the largest ever European junk bond sales with a €4.5bn deal in October 2006, saw the price of its bonds fall as low as 68.5 cents in the euro on Tuesday, according to S&P LCD, after disappointing second quarter earnings.
“The high-yield outlook is extremely economically sensitive and given our outlook for economies generally, we can’t be very optimistic about where the high-yield market is going,” John Fenn, an analyst at Citigroup, told a conference call this week.
Luke Spajic, head of European credit at Pimco, the world’s biggest bond investor, is still “quite cautious on the high-yield market”.
For the European market, part of the problem is that it was still relatively young when the crunch came and compared to the US had a much lower diversity of both issuers and investors.
But bankers also believe there are reasons to be hopeful and that at the right price the market is open to them. German healthcare group Fresenius is expected to issue bonds to finance its acquisition of APP Pharmaceuticals. It is a borrower some believe is well known among investors and would be well received.
Additional reporting Paul J Davies
Copyright The Financial Times Limited 2008
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