topleft
topright

Login or Register


Featured Blogger

The Chinese Economy is On a Slowing Boat
James Finnan

Red-Hot Thread

"The corporate brand is not only used to improve competitive positioning and express company aspirations, it can also be a powerful tool to motivate employees."
Big Deals (August 13) Print E-mail
Friday, 13 August 2010

By Marine Cole

The high-yield corporate bond market is booming and companies are taking advantage of it to pay down debt as the economy is showing signs of slowdown.

With 26 offerings for a total value of $14.3 billion, this week was the highest on record for global high-yield issuance both by total value and by numbers of issues, according to data provided by Thomson Reuters. Every region has seen an increase in offerings from the same period in 2009, with a 74 percent increase in the Americas and a 226 percent increase in Europe.

Companies-especially in the industrials, materials, and financials sectors-are benefiting from low yields to repay bank debt. This is especially the case of private equity-backed companies, which are trying to avoid defaults.

High-yield companies including Rite Aid, First Data and Toys R Us, are doubling the rate at which they're repaying leveraged loans, Bloomberg reported Friday. Bond sales surged to $20.9 billion in the first two weeks of August, exceeding the $16.7 billion for all of July. "It's the marginal issuer who has access in this type of environment who may not have had access under tougher market conditions that swings the needle," John Fenn, a credit market analyst at Citigroup, told Bloomberg.

As CFOZone noted at the end of July, companies, both high yield and investment grade, are taking advantage of a window of opportunity as the impact of the European sovereign debt crisis is fading and before the usual late-summer lull sets in.

Johnson & Johnson, which is rated AAA, sold $1.1 billion of 10-year notes and 30-year notes at the lowest interest rates on record for debt of that maturity.

In the merger and acquisition world, energy and power companies have the center seat. Including the announced $14.3 billion combination of UK-based energy provider International Power with the international assets of GDF Suez at the beginning of the week, the number of worldwide energy and power M&A deals is at the highest year-to-date total-with 2,050 deals so far in 2010. This is an increase of 5 percent by number of deals and 64 percent by total announced value compared to the same period in 2009. The International Power deal is the largest energy and power transaction so far in 2010.

Worldwide acquisitions of power and energy companies currently totals $292 billion-the most active industry, accounting for 22 percent of announced deals so far in 2010 by value, according to data by Thomson Reuters. The next most active industries are financials and materials-with total value of $199 billion and $142 billion, respectively.

One of largest buyouts of the year also happened this week in the energy and power sector, with the $4.7 billion acquisition of Dynegy by the Blackstone Group.

But the private equity space is far from recovered and new research is now questioning the value of private equity compared with the public equity market as it shows the average buyout fund has performed in line with stock markets.

A sample of 701 mature buyout funds generated average annual returns of 7.6 percent, against 6.8 percent for equally risky public market investments, according to research by Oliver Gottschalg at the HEC School of Management in Paris, as reported by the Financial Times.

"There seems to be a general belief that private equity offers in general an extraordinarily attractive risk-return profile to investors," said Mr. Gottschalg. "The view that private equity has historically offered average net returns to investors that exceed comparable investments in the public markets is wrong."

Comments (0)Add Comment

Write comment
You must be logged in to post a comment. Please register if you do not have an account yet.

busy
 
Copyright © 2009-2013 CFOZone. All rights reserved. CFOZone is a property of PSN, Inc.