Corporates shine as bond volumes hit records in 2012

Fri Dec 21, 2012 4:00am EST

LONDON, Dec 21 (IFR) - Corporates led a stellar year for credit in 2012 as investors sought safe-haven investment-grade debt away from the turmoil in the sovereign and bank sectors, while huge inflows drove global high-yield volumes to record highs.

Global high-yield corporate debt totalled USD116bn during the fourth quarter of 2012, bringing the year's supply to USD397bn - up 38% from 2011 supply of USD288bn, Thomson Reuters data shows.

The US market was on fire for the majority of the year, while Europe was prone to more volatility and periods of closure. By the end of the year, however, risk appetite was buoyant on both sides of the pond following a rally inspired by ECB President Mario Draghi's commitment to stem the euro crisis.

That paved the way for multi-billion dollar high-yield offerings in the final quarter from U.S.-based Cequel Communications, Plains Exploration & Production and Clear Channel.

The majority of the year's top 10 high-yield corporate bond offerings involved US borrowers, with CIT Group's USD3.25bn deal in February the largest high-yield offering of the year.

The only European deal to reach the top ten table was German auto parts supplier Schaeffler's EUR2bn-equivalent four-tranche deal, which also won IFR's European High-Yield Bond Award in 2012.

The average coupon for fixed rate high-yield corporate bonds issued during the fourth quarter of 2012 rose to 7.604% from 7.341% in the previous three months as lower-rated issuers accessed the market and riskier deals, such as payment-in-kind (PIK) toggles surfaced, especially in the United States.

Just this month, Taminco - a privately held specialty chemical producer - priced a USD250m senior unsecured five-year non-call PIK toggle via joint bookrunners Credit Suisse and Citigroup which paid a 9.125% coupon

In Europe, investors have also proved willing to move lower down the ratings scale, but coupons remain much higher. Recent PIK deals from Swedish cable firm Com Hem and Annington Homes, for example, each pay a 13% coupon.

INVESTMENT-GRADE

The pace of investment-grade corporate primary activity slipped by 10% in the fourth quarter to USD667bn from the third quarter, but still ended the year 13% higher than 2011 as global supply reached USD2960bn.

As investors continue to pour into the asset class, issuers have been able to sharply lower their borrowing costs, shown by a drop in the average coupon for fixed rate investment grade corporate bonds to an all-time quarterly low of 3.632% in the fourth quarter of 2012.

By geography, European corporate issuers raised USD1,226bn, up 6% from 2011 levels, but the biggest increase was in the U.S. where issuance was up 35% on a year ago to USD975bn, followed by Asia Pacific which was up 22% at USD673.1bn, accounting for 20% of all corporate debt.

The most notable deal in terms of size was the USD14.7bn six-part issue from AbbVie, the pharmaceutical spin-off from Abbott Laboratories, which attracted USD41bn of demand even though syndicate and buyside desks were only half-staffed in the aftermath of Hurricane Sandy.

The bond was the biggest ever on record and won IFR's Dollar Bond Award for 2012.

Non-US issuers also took about USD311bn out of the US investment-grade bond market year to-date, making it a record year for Yankee deal volume.

One of the standout deals was brewer Anheuser-Busch InBev's opportunistic USD7.5bn transaction in July, which had an average new issue concession of negative 10bp and set with record low coupons. The deal was awarded IFR's Yankee Bond of the Year.

Other sectors also set new issuance records.

Global asset-backed securities totalled USD317bn, up 41% from last year, and marking the strongest year since 2007 when volumes reached USD1,239bn.

Volumes from financials were less impressive as banks continued to deleverage, but issuers still raised USD1,749bn, up 6% from 2011.

Year-to-date underwritten agency & sovereign debt totalled USD1,173bn, up 2% over 2011 volumes of USD1,151bn.

JP MORGAN TOPS DCM FEE TABLE

Global debt issuance across all sectors totalled USD5,951bn, up 5% compared to 2011. Subsequently, debt capital markets fees rose 28% versus 2011 to USD20.9bn - a sharp contrast to respective 14% and 16% falls in loan underwriting and M&A advisory.

JP Morgan and Bank of America Merrill Lynch retained first and second places respectively in the league table rankings for global debt capital markets fees, but there was some shuffling in the top ten leader board below them.

Citigroup, Morgan Stanley, Barclays and Goldman Sachs all jumped up one spot to third, fifth, sixth and seventh respectively, while Deutsche slipped to fourth from third place and Credit Suisse slid to eighth from fifth.

The top 10 also saw a couple of newcomers, with Wells Fargo jumping to ninth from fourteenth, and HSBC to tenth from eleventh.

In European DCM rankings, Deutsche held steadfast at the top of the table while JP Morgan held the second spot for a consecutive year, but last year's third spot - held by BNP Paribas - was captured by Barclays, while the French bank slipped to fifth place.