This Week in Corporate Finance
Global Capital Markets
Boeing Co. and Morgan Stanley led U.S. corporate bond sales of about $27.5 billion this week as borrowers closed in on record issuance for the year.
Boeing sold $1.2 billion of notes, and Morgan Stanley, issued $2 billion of debt. Companies have sold $1.16 trillion of U.S. corporate bonds in 2009, compared with the 2007 record of $1.17 trillion.
The difference between investment-grade bond yields and Treasury issues narrowed 1 basis point this week to 215 basis points, the tightest since Jan. 8, 2008.
Royal Bank of Scotland Plc, sold $7 billion of debt due in March 2012, equaling the largest U.S. corporate sale since May.
GE Capital Corp., plans to issue sukuk bonds regularly following its debut offer in the Shariah-compliant debt market.
China’s Ministry of Finance will sell 50-year bonds for the first time next week.
Vietnam plans to fund energy projects with a $1 billion bond, its first since an inaugural sale in 2005.
U.S. Treasuries
Treasury two-year note yields touched the lowest level this year. The two-year touched 0.67 percent, the lowest level since December.
Three-month bill rates turned negative for the first time since last year’s credit freeze.
Swaps
Interest-rate swap spreads widened as yields on U.S. Treasuries declined as a slide in stocks damped demand for higher-yielding assets.
Commercial Paper Update
The U.S. CP market grew last week, resuming a three-month period of expansion after two weeks of contraction, Federal Reserve data showed on Thursday. For the week ended Nov. 18, the size of the U.S. CP market rose by $28.5 billion to $1.267 trillion outstanding, from $1.239 trillion last week.
The overall U.S. CP market size is still well below its peak of $2.2 trillion outstanding in August 2007 when the credit crisis broke out.
U.S. asset-backed CP fell to $496.3 billion outstanding from $510.3 billion the previous week. Unsecured financial issuance rebounded, partially recovering from the previous two weeks steep declines. This category rose by $40.6 billion after falling by $64.7 billion the previous week.
LIBOR
The cost of borrowing in dollars for six months between banks fell below the yen rate for the first time in more than 16 years as Federal Reserve officials signaled they may keep interest rates low.
Three-month dollar Libor was 4 basis points below the equivalent yen rate. That compares with a premium of 59 basis points at the beginning of the year, and 381 basis points at the beginning of 2008.
Banking
The FDIC closed another bank on Friday, and that brings the total number of bank failures to 124 in 2009. Commerce Bank of Southwest Florida was closed and the FDIC was appointed as receiver.
Credit Ratings
ThyssenKrupp AG, Germany’s largest steelmaker, had its credit ratings cut to junk from the lowest investment grade by S&P because of the company’s “high” spending and a “sharp downturn” in the industry.
Some 775 hybrid and subordinated notes sold by 170 “bank families” in 36 countries are on review after Moody’s altered assumptions used in ratings.
El Salvador was cut to Ba1 with a negative outlook by Moody’s, marking the third credit company to rate the country’s debt at junk.
Rating Agencies
S&P, Moody’s and Fitch were sued by the Ohio Attorney General, who said the three companies disregarded their responsibility to provide “accurate credit ratings of investments.”
S&P received a European Union antitrust complaint alleging that it unfairly charges licensing fees for securities-identification numbers in databases.
M&A
Pinnacle Foods Group LLC agreed to buy Birds Eye Foods Inc., the largest U.S. frozen-vegetable company, for $1.3 billion, adding to its Duncan Hines and Swanson food brands as the pace of buyouts increases.
IPOs
Sands China Ltd., raised HK$19.4 billion ($2.5 billion) in a Hong Kong share sale conducted at the low end of the offered range.
HealthPort Inc., postponed its $96 million initial public offering, becoming the fourth U.S. company in three weeks to shelve its IPO.
Bankruptcy
Advanta Ventures Inc., a unit of bankrupt small business credit-card issuer Advanta Corp., filed for Chapter 11 bankruptcy protection along with Advanta units BizEquity Corp. and Ideablob Corp.
Penn Traffic Co., the owner of 79 supermarkets in the northeastern U.S. that exited bankruptcy in 1999 and 2005, again sought court protection from its creditors, and plans an “expedited” sale.
CDS
The cost to protect against defaults on U.S. corporate bonds climbed to the highest in almost two weeks.
Credit derivatives traders settling contracts that protected against a default by CIT Group Inc. set a value of 68.125 cents on the dollar for the commercial lender’s bonds.
The price, the result of an auction by 13 dealers, means sellers of the swaps will pay 31.875 cents on the dollar to buyers of protection to settle the contracts
Leveraged Loans
Leveraged-loan prices are poised for their second straight weekly gain as companies tap banks to finance acquisitions and buyouts at the highest rate since 2007.
Banks arranged $112.9 billion of speculative-grade loans in 2009, less than half the $259.4 billion last year and an 87 percent drop from the record $841.8 billion two years ago.
Commodities
Gold climbed to a record in New York as investors bought precious metals as an alternative to holding weaker dollars. Silver, platinum and palladium reached the highest prices in at least 14 months.
Gold futures jumped to $1,153.40 an ounce, the highest ever, as the dollar declined as much as 0.8 percent against the euro.
Munis
The gap between benchmark short- and long-term municipal bond yields widened to the highest in at least nine years today as concern that inflation may accelerate led investors to favor shorter-term investments.
World Economies
The Japanese government said the world’s second-largest economy is in deflation for the first time in three years as it presses the central bank to be more aggressive about tackling price declines.
Tags: Banking, Bankruptcy, CDS, Commercial Paper Market, Commodities, Credit Ratings, Global Capital Markets, IPO, Leveraged loans, LIBOR, M&A, Munis, rating agencies, swaps, U.S. Treasuries, World Economics
