This Week in Corporate Finance
Global Capital Markets
U.S. investment-grade corporate bond sales fell for the second straight week as prices declined on newly issued debt, sparking concern that an almost three-month rally may be ending. Sales of at least $17.5 billion compare with $18.5 billion last week and an average this year of $27 billion. Comcast Corp., the largest U.S. cable operator, sold $1.5 billion of bonds, and Deutsche Telekom AG sold $1.5 billion of dollar-denominated debt split evenly between 5- and 10-year maturities.
Wind Telecomunicazioni SpA, Italy’s third-largest mobile-phone company, plans to sell as much as 2.7 billion euros ($3.8 billion) of debt in Europe’s biggest high- yield bond issue since October 2006. The proposed deal is the latest sign of life in the region’s junk bond market, which slammed shut two years ago with the onset of the worst financial crisis in decades. Companies with below-investment grade credit ratings have started to issue again this year, from German medical equipment builder Fresenius SE in January to IFCO Systems NV this month.
E*Trade Financial Corp. priced a higher-than-expected 435 million shares, bringing in gross proceeds of $478.5 million, in the first part of a long-awaited plan to plug its capital shortfall. The bank and online brokerage had said Wednesday it would sell $400 million in stock as part of an effort to raise more than $1 billion.
U.S. Treasuries
Treasuries rose, paring this week’s losses, as declining consumer prices drove inflation-adjusted returns on 10-year notes above 5 percent for the first time since 1994.
The yield on the benchmark 10-year note fell one basis point, or 0.01 percentage point, to 3.82 percent. The price of the 3.125 percent security maturing May 2019 rose 3/32 or $0.94 per $1,000 face amount, to 94 11/32. The yield yesterday touched 3.85 percent, the highest since June 12.
The Treasury will auction $40 billion in two-year notes on June 23, $37 billion of five-year debt the following day and $27 billion of seven-year securities on June 25. The total is $3 billion more than when the government last offered notes of similar maturities and the most since the U.S. began sales of this combination of maturities in February. The government didn’t sell coupon securities this week.
The U.S. may sell a record $3.25 trillion of debt this fiscal year ending Sept. 30, almost four times 2008’s $892 billion.
Commercial Paper Market
The U.S. CP market contracted to the lowest level outstanding in at least 8-1/2 years, as the credit crisis and severe economic downturn continued to erode it, Federal Reserve data showed on Thursday. For the week ended June 17, the size of the U.S. CP market fell by $27.7 billion to $1.202 trillion outstanding, from $1.230 trillion the previous week.
That’s the lowest total outstanding since at least early 2001, before which these data were calculated differently and hence are not comparable. The overall U.S. CP market peaked at about $2.2 trillion outstanding in August 2007 when the credit crisis erupted.
Asset-backed CP outstanding, which has been especially hard hit by loans that turned bad in the housing bust and as consumers have been squeezed, fell by $22.2 billion after contracting $32.5 billion the previous week, to $502.7 billion outstanding. Unsecured financial issuance outstanding slipped by $100 million, after rising by $15.9 billion the previous week.
LIBOR
The rates banks say they pay for three- month dollar-denominated loans was little changed at 0.61 percent today, from as high as 4.82 percent on Oct. 10.
Libor-OIS, which indicates banks’ willingness to lend, fell to 0.37 percentage points today, the lowest level since February 2008. The TED spread, the difference between what the U.S. Treasury and banks pay to borrow for three months, narrowed to 44 basis points yesterday, the lowest level since August 2007, when the credit crisis began.
The British Bankers’ Association may expand the pool of banks that set the London interbank offered rate in a bid to bolster confidence in the benchmark for more than $360 trillion of financial products around the world.
Banks without a physical presence in London may apply to join the panel of members that contribute to the Libor-setting process, the BBA said on its Web site. Banks will have to be “material participants” in the London market, the BBA said. A year ago, the organization said it would look to expand the panel of contributors and possibly add a second daily survey.
Credit Ratings
Standard & Poor’s Ratings Services said that it lowered its ratings and revised its outlooks on 22 rated U.S. banks.
Bankruptcies
Eddie Bauer Holdings Inc., the U.S. outdoor-clothing chain, filed for bankruptcy court protection as part of a proposed sale to affiliates of CCMP Capital Advisors LLC for $202 million.
Extended Stay Hotels, the operator of mid-priced hotels acquired at the peak of the commercial real estate market for $8 billion, filed for bankruptcy protection as the recession cut corporate and leisure travel.
Six Flags Inc., the owner of 20 theme parks, sought bankruptcy protection 3 1/2 years after Washington Redskins owner Daniel Snyder become chairman and hired new managers in an attempt to return it to profitability.
FED
The Federal Reserve Bank of New York named Jefferies & Co. a primary dealer, the first addition since 2006 to the network of securities firms that underwrite the U.S. government’s debt.
A reduction in primary dealers to 16 firms this year, the lowest since the network was formalized in 1960, had led to wider bid-ask spreads, reduced liquidity and removed bidders as some auctions have doubled in size.
TARP
JPMorgan Chase & Co. and Goldman Sachs Group Inc., are among 10 of the nation’s largest banks that repaid $68 billion to the U.S. Treasury in a step toward shedding government restrictions on lending and compensation.
TALF
The Federal Reserve received no requests from investors for loans to buy new commercial mortgage-backed securities under an emergency program aimed at reducing borrowing costs and reviving U.S. economic growth.
Tags: Bankruptcies, Commercial Paper Market, Credit Ratings, FED, Global Capital Markets, LIBOR, TALF, TARP, U.S. Treasuries
