This Week in Corporate Finance
Global Capital Markets
IBM and liquor maker Diageo Plc led $13.7 billion of investment-grade bond offerings this week, the slowest period in two months. Companies have borrowed at least $1.1 trillion in bonds this year, compared with $722 billion in the corresponding period of 2008 and $1.04 trillion in 2007, the biggest year for bond sales. For all of 2007, $1.17 trillion of debt was sold.
Ford Motor Co., the only major U.S. automaker to avoid bankruptcy, sold $2.5 billion of convertible notes, 25 percent more than planned, in the largest offering of the debt this year.
Convertible bonds have returned 36.7 percent this year, rebounding from a 33 percent loss in 2008, the worst performance for the securities since at least 1988.
A year-long rally in Russia’s international bonds is pushing yields toward record lows as the country prepares to sell debt to foreign investors for the first time since the country’s 1998 default.
U.S. Treasuries
Treasury two-year note yields touched the lowest since May after the U.S. unemployment rate rose to a 26-year high of 10.2 percent and the Federal Reserve said it will keep rates at record lows for an “extended period.”
The difference between yields on 2-year notes and 10-year securities reached 2.70 percentage points, the most since July, before the U.S. sells $81 billion of 3- and 10-year notes and 30- year bonds next week.
U.S. banks are buying Treasuries at the fastest pace since just after the last recession, helping shore up demand now that the Federal Reserve has finished purchasing $300 billion worth to hold down borrowing costs.
Commercial Paper Update
The U.S. CP market declined both on a seasonally adjusted and unadjusted basis in the week ended Nov. 4, according to Federal Reserve data released Thursday. On a seasonally adjusted basis, after 11 weeks of steady increases, it declined by $61.7 billion this week. Last week, it increased $10.6 billion. On an unadjusted basis, this week’s decline is $6.7 billion, after a decrease of $13.3 billion last week.
The asset-backed portion declined by $28 billion on a seasonally adjusted basis and by $38.1 billion on an unadjusted basis.
On a seasonally adjusted basis, the market is now $1.315 trillion in size, substantially down from a peak of $2.2 trillion in July of 2007. On an unadjusted basis, the market is $1.149 trillion.
Central Banks
Australia raised its benchmark interest rate by a quarter percentage point for the second straight month, becoming the only nation to increase borrowing costs twice this year as the global economy recovers.
The world’s biggest central banks are starting to unwind emergency measures introduced earlier this year to stave off a second Great Depression.
Banking
UCBH Holdings Inc.’s United Commercial Bank, a San Francisco-based lender with $11.2 billion in assets, was seized by regulators, becoming the 120th U.S. bank to fail this year.
United Commercial was the fifth U.S. lender to be seized by regulators as banks fail at the fastest rate since 1992.
Credit Ratings
Ireland had its credit downgraded two levels by Fitch Ratings, which cited a widening budget deficit and the rising cost of bank-rescue measures.
The rating was reduced to AA- from AA+ with a “stable” outlook, the company said in a statement. Fitch cut the grade from the highest AAA level in April. The downgrade puts Ireland’s rating at the same level as Italy and Cyprus.
Rating Agencies
The global speculative-grade default rate rose to 12.4 percent in October, the highest proportion of defaults since the Great Depression, according to Moody’s.
Swaps
Interest-rate swap spreads mostly narrowed as eurodollar futures traders priced in Federal Reserve policy makers’ decision to hold borrowing costs near zero for “an extended period.”
M&A
Berkshire Hathaway Inc. agreed to buy railroad Burlington Northern Santa Fe Corp. in what is described as an “all-in wager on the economic future of the United States.”
The purchase, the largest ever for Berkshire, will cost the company $26 billion, or $100 a share in cash and stock, for the 77.4 percent of the railroad it doesn’t already own.
Sumitomo Trust & Banking Co. and Chuo Mitsui Trust Holdings Inc. agreed to merge creating Japan’s fifth largest bank as they seek to boost profit and brace for tougher capital requirements.
IPOs
Aviv REIT Inc. became the second company in less than a week to postpone its U.S. initial public offering as the busiest period for new listings in two years leaves investors with the worst returns on record.
Hyatt Hotels Corp., the hotel chain controlled by Chicago’s Pritzker family, sold 38 million shares in an initial public offering at $25 each, at the higher end of its forecast range in the third-biggest U.S. IPO of 2009.
PGE SA, the Polish power provider that raised 5.97 billion zloty ($2.1 billion) in Europe’s largest initial public offering this year, jumped 16 percent on its first day of trading on the Warsaw Stock Exchange.
Bankruptcy
CIT Group Inc., the 101-year-old commercial lender that saw its funding dry up in the credit crunch, filed for bankruptcy in an effort to cut $10 billion in debt following a failed debt exchange and U.S. taxpayer bailout.
CDS
The cost to protect against defaults on U.S. corporate bonds fell for a fifth day as a jump in unemployment bolstered speculation that labor market strains will support the Federal Reserve’s pledge to keep interest rates low.
Commodities
Gold climbed to the highest in a week as the dollar declined, boosting the appeal of the precious metal as an alternative asset. Silver also gained.
Tags: Bankruptcy, Central Banks, Commercial Paper Market, Commodities, Credit Ratings, Global Capital Markets, IPO, M&A, rating agencies, swaps, U.S. Treasuries
