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ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
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February 2, 2009 12:01 AM ET
(Bloomberg)
But even the minor revival in the credit markets wasn’t able to keep 19 companies from defaulting on their debt during the month, including three more last week. Global investment-grade corporate debt issuance rose in January to its highest level in over six months, reaching $212.3 billion, according to data from Thomson Reuters. European investment grade debt volume reached $139 billion in January, accounting for 66% of total global investment grade proceeds. French issuers led all other countries with $38.8 billion or 18% of total global investment grade volume due largely to two mega offerings from financial issuer Societe de Financement ($6 billion) and electricity concern EDF ($5 billion). U.S. blue chip companies ConocoPhillips, AT&T and Goldman Sachs all got in on the act in a big way last week, raising $5.9 billion, $5.5 billion and $2 billion, respectively, through debt issues. The improvement in the credit markets coincided with a rebound in M&A activity, at least for U.S. targets. M&A involving U.S. targets increased 56% in January compared to a year earlier, to $97 billion, according to Thomson Reuters. Global M&A volume was $160 billion, off 8% from a year earlier. Pfizer’s $65 billion deal for Wyeth was by far the largest deal and one that will be heavily dependent on the credit markets, requiring $22.5 billion in financing from five banks. Pfizer is betting big that those banks will be able to provide that kind of credit. If they can’t, the drug maker could be on the hook for a $4.5 billion break-up fee. Even moving down the credit spectrum, conditions pointed toward a market thaw. High yield volume reached $5.2 billion, the highest level since June 2008 and a 151% increase compared to the same period last year, Thomson Reuters data showed. The offerings, however, remained modest in size, with none of the nine issuances eclipsing $1 billion in proceeds. The largest was a $950 million borrowing by Chesapeake Energy on Jan. 28. Syndicated loans—often a lifeline for low-rated companies—were scarce, especially for U.S. companies. Global activity totaled $36.5 billion in January, Thomson Reuters said, down 76% from December and 79% from a year earlier. In fact, U.S. loans accounted for just $8.5 billion of the total, down 88% from December and 90% from a year earlier. Retailer Macy’s was the largest U.S. loan recipient during the month, getting $2 billion. Despite the signs of life in the credit markets, the foundering global economy continued to push companies into default. Three more issuers defaulted in the week ended Jan. 29, two U.S. companies and one based in China. That brings the tally of global corporate defaults to 19 so far this year, Standard & Poor’s said. Of the three most recent defaults, two are forest products and building materials companies, Neo-China Land Group and Smurfit-Stone Container. The other was a chemical, packaging, and environmental services company Foamex. S&P said its U.S. corporate speculative-grade default forecast is 13.9% for the next 12 months, with a pessimistic scenario of 18.5% and an optimistic scenario of 10%. S&P noted that with limited access to credit, companies teetering on defaults have increasingly been resorting to distressed exchanges in an effort to extend maturities and reduce leverage. There were 12 distressed exchanges in the U.S. in 2008 with eight occurring in December, including ones by Harrah’s Entertainment and GMAC. Global equity capital markets volume was just $16.6 billion in January compared to $35.5 billion in January of 2008, a 53% decrease, Thomson Reuters found. U.S. companies issued $2.7 billion in follow-on offerings, a 10% decrease from the previous January. The last IPO in the U.S. was in Nov. 20, though three companies announced plans to go public during the week of Feb. 9. Equity market volatility has also hammered convertible offerings, which totaled $702 million in January, a 96% decrease from 2008. Banks and financial holding companies continued to issue debt guaranteed by the U.S. government's Temporary Liquidity Guarantee Program (TLGP) in January, when they issued $46 billion of such debt, according to Thomson Reuters. Since the introduction of the program in late November 2008, total issuance has reached $154 billion, with Bank of America/Merrill Lynch leading all issuers with $33 billion followed by General Electric Capital with $24 billion.
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