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Tag >> debt
Equity investors are not the only ones who have become more comfortable with taking on risk in the aftermath of the earth-quake, tsunami and nuclear crisis in Japan and anti-government demonstrations in the Middle East.
A number of corporations are once again ramping up debt offerings after many companies abruptly postponed sales last week.
On Monday morning alone, for example, SunTrust Banks said it would sell $1 billion in new senior unsecured debt. It plans to use the proceeds, along with a $1 billion common stock offering, to repurchase its $3.50 billion of fixed rate cumulative preferred stock, Series C and $1.35 billion of fixed rate cumulative preferred stock, Series D issued under TARP, according to Dow Jones.
The European debt crisis is rocking the global stock markets, many debt markets as well as the Euro.
But one market that seems to be immune from the growing volatility is the market for riskier US corporate bonds.
China is slowing making inroads into another major market--debt underwriting.
Caterpillar said its financial services subsidiary raised about $150 million in a yuan (also known as renminbi) denominated medium term note. The issuance was conducted in Hong Kong and bought by institutional investors.
US companies are again taking advantage of low interest rates to issue debt and further build up coffers. The latest companies to join the march to the debt markets are Johnson & Johnson, Coca Cola and Wal-Mart, as the New York Times reported this week. They follow eBay, Microsoft and PepsiCo, who all came to market with low-coupon issues last month.
However, whether this will be used to fuel increased M&A or will simply sit on balance sheets remains to be seen.
Corporate borrowers will likely continue to enjoy record low interest rates in the next few months as the Federal Reserve keeps selling Treasuries and the outstanding level of corporate bonds goes down.
Obviously, that's if the US economy avoids a double-dip recession.
After fits and starts since the European sovereign debt began in April, the primary bond market finally reopened this week, and companies are taking full advantage of it.
Driven by better-than-expected earnings, a speculative-grade default rate that continues to fall and results of European banks stress tests that seem to have contented many investors, companies - both investment grade and high yield -- are jumping at the opportunity to raise fresh debt before the usual late-summer lull in investor interest sets in.
Here is yet another sign the economy is in better shape than the skeptics think it is...maybe.
Standard & Poor's said it expects the US corporate speculative-grade default rate to plummet to 2.8 percent for the 12-months ending June 2011. This is less than the current rate of 5.9 percent.
Not every company is sitting on its hands until the economy improves. Insurance giant Aon is taking on a significant amount of short-term debt to acquire Hewitt Consulting for $4.9 billion and spend on its brand to exploit new opportunities.
The Hewitt deal will help Aon get a firm foothold in human resources and benefits outsourcing, significantly increasing Aon's market share in this area and positioning the company to take on rival insurance broker and consulting big Marsh and McLennan. The move also gives Aon a more balanced mix of insurance brokerage and consulting revenue.
In a brief last month, the International Monetary Fund said that US debt is expected to exceed 100 percent of GDP within the next five years-as this chart clearly shows.
In the midst of a slowdown of the US economic recovery and the possibility of a double-dip recession in Europe, US mid-sized businesses are remaining cautious about borrowing. But they are also relying less on cost cutting for growth, opting instead for international expansion, which could in turn boost the US economy.
According to a survey of nearly 650 US senior financial executives polled by HSBC's commercial banking division, US mid-sized businesses continue to express some caution, which is evident in their reluctance to take on new debt. "A surprising 60 percent of respondents stated that they have not applied for an increase in their credit line or for a new credit line in the past 12 months," HSBC said in a press release Monday.
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