Blue chip companies go on a fundraising spree as borrowing costs dip

Credit investors seem eager to snatch up bonds in the primary markets on the heels of last week’s big fund inflows even as distressed companies continue to file for bankruptcy.

Blue-chip companies may raise as much as $35 billion (Dh128bn) in new debt in the next five days, in line with last week’s volume, according to an informal poll of primary dealers. The syndicate desks have increased their August supply projections to as much as $75bn from as low as $50bn at the end of July as companies might borrow more to lock in record-low borrowing costs.

Investment-grade corporations have sold about $1.28 trillion of US bonds in 2020, according to data compiled by Bloomberg, a record for this point in any year.

“We might see more supply than anticipated but certainly less than the first half of the year,” said Josh Lohmeier, head of US investment grade at Aviva Investors, which oversees about $438bn in assets. “We might start to see more issuance explicitly for companies wanting to restructure their maturity schedule.”

Risk premiums on high-grade corporate bonds have narrowed substantially since the end of June, by around 0.23 percentage point, and are at their lowest level since early March, according to Bloomberg Barclays index data. Barclays is recommending investors look at hedging investment-grade corporate bonds now, to protect against looming risks and high valuations.

The extent of further spread tightening “appears increasingly limited” amid concerns of a second wave of virus infections and investors will have to assume greater credit risk in the BBB tier -the lowest rung of the grade - for more attractive returns, Leslie Falconio, senior fixed-income strategist at UBS Global Wealth Management, wrote in a note last week. Ms Falconio also favours high-grade bonds maturing within 10 years.

In the leveraged finance market, Windstream Holdings’ $2.15bn debt sale will likely get the week started with pricing slated for as early as Monday.

The offering is split between $1.4bn of eight-year first-lien notes that are being marketed in the 8.25 per cent area and a $750 million seven-year term loan offered at a spread of 6.25 percentage points over the London interbank offered rate and a discounted price of 96 cents on the dollar.

Refinancing activity is expected to drive more high-yield supply after the second-busiest week of the year for issuance, according to data compiled by Bloomberg. Risky borrowers are refinancing at historically low rates with new bond sales, helped by some of the biggest inflows on record into retail funds that buy junk bonds.

Activity has picked up in leveraged loans as well with prices hitting a five-month high and a $70m inflow into funds, the first in about two months.

At least 10 deals for about $9.5bn are due this week, including a $2.4bn term loan to finance the acquisition of a DXC Technology unit by Veritas and a $1.95bn loan financing the buyout of software company LogMeIn.

On Monday. Asplundh Tree Expert also kicks off marketing for a $2bn loan that will fund a dividend, the third such deal of its kind since July 16.

Cengage Learning, the online education platform that terminated plans to merge with competitor McGraw Hill, reports earnings this week and plans a call Thursday morning. Retailer J. Jill, meanwhile, extended its existing forbearance agreements until the same day.

Brooks Brothers Group has a sale hearing on August 14 in which the preppy clothing retailer may announce a final buyer for its assets. The company filed for Chapter 11 bankruptcy protection in July.