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US high-grade corporate bond issuance sets weekly record

[NEW YORK] Highly rated US corporate bond issuers raised a record US$110.50 billion this week, according to Refinitiv IFR data, as fears that the coronavirus pandemic may limit access to capital markets stoked borrowing.

A US$19 billion bond from T-Mobile to finance its acquisition of rival telecom Sprint on Thursday helped push this week's issuance past the record US$109.10 billion set last week.

The market for new investment-grade debt has boomed since the Federal Reserve and Treasury Department last week announced monetary and fiscal stimulus to help contain the economic fallout from the pandemic. Although the investment-grade sector will benefit from both, the default rate for riskier companies is expected to triple to 10 per cent by December, according to S&P Global, and investors may lose their appetite for any corporate debt.

"The preponderance of our day is spent talking to clients about capital markets access. It started with cruise ships, moved to airlines and then auto companies. Companies are just looking at day-to-day volatility in the markets and not taking access to the markets for granted," said Richard Zogheb, head of global debt capital markets at Citi.

Although demand remains strong, borrowing costs have risen.

Sysco, which distributes food and equipment to restaurants and has been hard hit by the industry's shutdown, issued a four-part US$4 billion bond on Monday, but at twice the cost of its previous issuance. Coupons on the new issue ranged between 5.65 and 6.6 per cent, versus 2.4 and 3.3 per cent in February.

"The reality is that the window is open right now. Companies are coming to market but they're paying a hefty concession," said Andrew Brenner, head of international fixed income at National Alliance Securities.

"Even though spreads have widened, they've cheapened things up to make sure the deals go well. They desperately need cash and they don't want to have to go to lines of credit if they don't have to."

Even as issuers find investor appetite for new debt, investment grade funds have seen record outflows in recent weeks. Nearly US$8.5 billion was pulled from high-grade bond funds in the week to April 1, the fifth straight week of outflows, according to Lipper data. This week's outflow, however, was smaller than the last, as the Fed's pledge to buy bonds and the passage of a US$2 trillion stimulus package have reassured some investors.

Other notable deals this week included a US$20 billion issue from tech giant Oracle and a US$6.5 billion deal from cruise line Carnival.

REUTERS

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