U.S. corporate bond sales soar, more to come in May
By Anastasija Johnson
NEW YORK, April 30 (Reuters) - May could be another strong month for U.S. high-grade corporate bond issuance, after tighter credit spreads and banks' efforts to patch up weakened balance sheets lifted April sales to pre-credit crisis highs.
U.S. companies sold $115.7 billion of high-grade debt month-to-date, according to Thomson Reuters data. That's the fourth-highest level on record and the highest level since last May, when issuers sold almost $117 billion.
Vincent Murray, head of investment-grade syndicate at ABN Amro, NY, said he expects another strong issuance month in May, though probably not as strong as April.
"The brokers and banks are going to continue to need to raise money," he said.
Issuance soared this month as the U.S. credit market rallied after the Federal Reserve orchestrated a rescue of Bear Stearns in March, calming fears that financial markets would be left to unravel under the weight of bad mortgage loans.
As a result, corporate credit spreads, which measure investors' perception of risk, have narrowed to 263 basis points over Treasuries from a record 305 basis points on March 20, according to a Merrill Lynch index.
"The result of the rally in investment grade has been a deluge of issuance," Lehman Brothers said in a report.
RECAPITALIZING
April issuance has been mainly driven by financial institutions that had to raise capital after recognizing losses and reporting some $300 billion in write-downs since the U.S. housing and credit crisis took hold last year.
The final write-down figure may approach $400 billion to $1 trillion, according to various estimates, which means banks will continue to tap the market.
Bank of America (BAC.N), which posted a 77 percent decline in quarterly profit last week, became the latest bank to hit the market for cash. The largest U.S. retail bank sold $6 billion in debt on Tuesday, according to market sources.
Other banks that sold debt or hybrid securities this month include Merrill Lynch MER.N, UBS (UBSN.VX), Wachovia Corp WB.N, Citigroup (C.N), Lehman Brothers LEH.N and JPMorgan Chase (JPM.N).
Many of these banks needed to raise money to improve their capital ratios, but issuance is also driven by a heavy redemption calendar.
Banks and brokers have about $175 billion of fixed and floating term maturities this year, much of which is expected to be refinanced, according to a Lehman Brothers report.
"Most likely it's going to be a strong month again. Redemptions remain significant in May and issuers are still benefiting from a relatively low all-in yield environment," said JPMorgan analyst Eric Beinstein.
INDUSTRIALS
And now that many industrial companies are out of blackout periods that curtail issuance during earnings season, that sector of the market may also see more supply, ABN AMRO's Murray said.
"I think it will be substantial," Murray said.
Total supply from industrial companies is already $94 billion in 2008 compared to $66 billion through the first four months of 2007, according to a report by JPMorgan.
Utilities, which sold $27 billion debt year-to-date, are expected to continue to be heavy issuers because they have entered the next capital expenditures cycle, Lehman said.
Technology, media and telecommunications companies still have some funding needs left, and the metals and mining sector is expected to bring a significant amount of paper to support refinancings, mergers and acquisitions.
This could bring the total fixed-rate issuance to $750 billion to $800 billion this year, Lehman estimated, while floating-rate sales could reach $100 billion to $150 billion.
(Reporting by Anastasija Johnson, Editing by Chizu Nomiyama)
