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Monday May 23, 08:15
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High-yield market in bad shape, issuers wait and see
(by Dr.Goldfinger)
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Junk bond market is heading to a standstill as not a single an company in Europe has sold bonds of at least 10 million euros since May 4, after the downgrade of GM’s and Ford’s credit ratings by ratings agency Standard & Poor’s. Some of the companies including South Africa-based Cell C Ltd. and Blagden Packaging Group NV delayed their issues until the market regains its shape.
``We would love to know when the markets will be back in form and allow us to re-enter,’’ said Jonathan Newman, head of strategy at Cell C. ``We don’t have an indication or an idea as to when that will be.’’
The reason behind the delays is the rising cost of borrowing due to widening in junk-bond spread over government debt by 42 basis points, which sent the premium to a 19-month peak. This has led Cell C that was about $790 million worth of bonds to postpone its issue on May 9 on seeing a surge in borrowing costs at the time the deal was under preparation.
``It’s horrible out there,’’ said Philip Milburn, who manages about $2.4 billion of bonds at Aegon NV in Edinburgh. ``Issuers know it’s going to be hard to get a deal done.’’
Hopes for an improvement in the market status push many investors to take a wait-and-see attitude.
However, the yields on junk bonds are still lower than average borrowing costs over the past six years, as bonds yielded 7.45 percent on May 19 as compared to 12 percent since 1999. Merrill Lynch’s numbers show.
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