This week, investors have been trading some of the riskiest trades which proved that the primary market is wide open for all kinds of junk-rated borrowers who want to issue bonds, according to a piece published by Reuters.
More than $8 billion of new high-yield bonds were priced over the past week. The issuers varied from highly leveraged firms to companies with lower ratings.
A large number of these bonds were increased in size during the book build and nearly all of them were priced tighter than initial whisper numbers.
According to Jon Stanley, a portfolio manager at Newfleet, no matter the industry or the rating, all transactions were oversubscribed and others were done on reverse equity.
Beazer Homes (NYSE:BZH), a home building company, was one of the companies that had no issues to issue bonds. The company’s leverage was about eight times as of end-June, according to S&P, which is more than the six times considered by US regulators as problematic under their guidelines.
However, this was not a concern for investors as the deal was closed at $400 million, up from the initial target of $300 million and it was priced at 8.75%.
Another company that succeeded over the past week was aluminum producer Novelis, which was able to secure $1.5 billion through a B2/B rated ten-year non-call five priced at 5.875%, which is inside the 6% range.
Packaging company Ardagh and German auto parts maker Schaeffler (ETR:SHA) were also among the companies that secured deals. Both firms managed to seal payment-in-kind notes giving them the option to forgo cash interest payment.
According to bankers, borrowers should take advantage of the current window in case it closes later this year influenced by the 2016 US presidential elections. The elections might not influence the window, but the possibility of volatility still stands, so if an investor needs money, they should get it now.
Bonds issuance now could allow companies to save on interest costs and boost up their balance sheets.
What is currently happening is what every chief financial officer should be doing – lowering interest costs and moving out maturity limitations, said Invesco high-yield portfolio manager Darren Hughes.