Companies raise record $140bn in US junk bond market in first quarter

Corporations have issued $140bn within the US junk bond market over the previous three months, outpacing a file sprint for money within the second quarter of 2020 when teams raced for funding to outlive the shock of coronavirus.

The information, collated by Refinitiv, spotlight how even riskier debtors have been capable of reap the benefits of low borrowing prices to fund acquisitions, pay their house owners dividends and refinance current debt.

It’s also the newest signal of the dimensions of the rebound from a yr in the past, when high-yield bonds had been among the many belongings below intense strain throughout a turbulent time within the monetary markets.

“It’s stunning,” stated John McClain, a portfolio supervisor at Diamond Hill Capital Administration. “I didn’t count on this. However at this level, I don’t count on any slowdown quickly.”

The three largest issuance quarters on file have all fallen up to now 12 months, serving to to propel the scale of the US excessive yield market in the direction of a file $1.5tn, in line with information from Ice Information Companies, from $1.2tn in the beginning of final yr. This massive-scale issuance additionally means corporations may have extra debt that must be refinanced later, one thing that’s anticipated to spice up future issuance volumes.

Buyers have flocked to junk offers as low rates of interest have pushed them to hunt out increased returns in riskier markets, predicated on the US financial restoration taking root and serving to to bolster low-rated corporations’ skill to repay their money owed. 

Money-strapped cruise operator Royal Caribbean raised $1.5bn this week to refinance debt coming due over the subsequent two years, in line with individuals accustomed to the deal, all whereas nonetheless burning via 1 / 4 of a billion {dollars} monthly whereas ships stay docked because of the pandemic, in line with regulatory filings. 

Earlier this month retailer Neiman Marcus, which collapsed final yr, raised $1.1bn — elevated from $1bn as a consequence of investor demand — to refinance loans taken out to fund its exit from chapter. Cinema operator Cinemark and struggling airline American Airways additionally each issued bonds earlier this month to repay current debt.

It has additionally proved a lifeline for a lot of vitality corporations which have discovered a extra receptive investor base following a sustained rally within the value of oil.

The demand for high-yield bonds has even allowed some corporations to offer their house owners a bumper payday. Communications firm Liberty Latin America raised $820m this week to refinance debt and pay $250m to shareholders. Mortgage lender Mortgage Depot used a $600m bond to each pay down debt and fund a particular dividend, in line with individuals accustomed to the deal. 

Nonetheless, some traders and analysts are starting to sign a extra warning strategy as rising inflation expectations knock US authorities bond costs, which has begun dragging down junk bonds.

“Proper now the market is beneficial so that you see a flood of issuance,” stated Gary Pokrzywinski, chief funding officer for Strategic Revenue Administration, an asset administration agency targeted on company debt

“If markets begin to wrestle it should shut down. Excessive yield issuers discovered a very long time in the past that they should come to market early to refinance their debt. So when markets are open you see a flood of bonds.”