by Danielle Robinson
NEW YORK, May 9 (IFR) - The US dollar-denominated
investment grade debt market is on track for its biggest year
since the credit crisis, as syndicate desks in the US prepare
for $85bn-$100bn of deals in May.
With $20bn-$25bn in the calendar this week, the amount of
unsecured corporate debt raised year-to-date is likely to be
around $360bn or more by Friday -- exceeding the $338bn raised
in the entire first half of 2010. That's a figure that excludes
self-led deals, everything 18-months and shorter, all
structured bonds and anything issued by sovereigns,
supra-nationals and agencies.
The market's extraordinary strength puts it well on the way
to beating last year's $768.4bn total, making it the biggest
year since 2007's all-time record of $1trn, according to
Thomson Reuters data.
"I don't think we'll keep up this pace throughout the year,
but we are definitely on the way to exceeding 2010 issuance
levels," said Anne Daley, a managing director in Barclays
Capital's investment grade syndicate group.
Bankers are considering whether to revise their 2011
forecasts up from around the $700bn area for 2011 to around
$800bn. That compares with $646.8bn, $718.5bn and $768.4bn in
2008, 2009 and 2010, according to Thomson Reuters data.
Volumes were in the $400bn to high $600bn area in the early
2000s, before ballooning to all-time records of $940bn in 2006
and $1trn in 2007.
The volume of issuance fell back in 2008 and has risen
steadily since as banks regained access to unsecured debt,
rates dropped and as corporates diversified beyond local
markets and bank loans.
FUNDING A WAVE OF MERGERS
This year's volumes have been further boosted by the
resurgence of new themes such as share repurchasing and mergers
and acquisitions (M&A).
"In 2009 and 2010 the vast majority of corporates were
loathe to use liquidity to repurchase stock, just given the
uncertain times," said the head of North American debt capital
markets (DCM) at a major bank in New York.
"Now, particularly given the large cash positions these
organizations have accumulated, having a stock repurchasing
program makes sense to sop up excess liquidity. Corporates
finance it with commercial paper and then pay that down with
Debt issuance related to M&A activity picked up
significantly in the first quarter and should continue to grow
for the rest of the year.
"M&A-driven bond issuance was 25-30% of the market place
pre-crisis," said Bryan Jennings, managing director in global
capital markets at Morgan Stanley. "It died back to as close to
zero as you can get during the crisis, but now it's driving as
much as 10%-15% of total investment grade volume and I would be
shocked if it did not account for 20-25% by the end of the
Certain corporate sectors have also become more active this
year. Industrials exposed to rising commodity prices, for
instance, are tapping the market for more working capital. Some
of the more infrequent borrowers in the technology, media and
telecom (TMT) sectors are also borrowing again.
"We have seen tech issuers return, whether it's Oracle
ORCL.O, Microsoft (MSFT.O) or first time issuers like eBay
(EBAY.O), looking to come into the market as their businesses
mature and as they begin to embark on more aggressive policies
to return capital to shareholders," said the DCM head.
The low rate environment, however, continues to be the
foundation upon which US and non-US so-called 'Yankee' issuers
have based funding decisions.
"The rate market continues to drive people to fund early,"
said Andrew Karp, managing director and head of investment
grade debt syndicate for the Americas at Bank of America
"We continue to see a steady amount of pre-funding by
issuers being persistent about managing their liquidity and not
waiting until they get within three to six months of
Yankee deal volume gathered force last year and has
continued to increase year-to-date, especially in the FIG
space, where foreign banks now account for more than half of
all US dollar FIG deal volume.
"We've seen about 50% of all volume in investment grade
come from non-US borrowers," said Paul Spivak, managing
director and head of investment grade debt syndicate for the
Americas at Morgan Stanley. "We've seen this increase from
Yankees for a while, but it's gotten even higher this year."
Anecdotally, bankers feel that the number of first-ever
borrowers has also increased this year.
"We have seen first-time issuers -- as well as those that
are rare issuers in US dollars -- materially change and enhance
the methods by which they access the international capital
markets," said the DCM head.
"There has definitely been a significant broadening and
expansion of markets that borrowers are looking to access.
That's naturally benefited the US dollar market because it's so
liquid, it's very diversified in terms of investor type and
(Danielle Robinson is a senior IFR analyst; Tel: 1 646 223