Big Deals (September 3)

August saw record global high-yield debt issuance and M&A, while investment-grade corporations enjoyed record low coupons.

By Marine Cole

August was a record month for global high-yield debt issuance and mergers and acquisitions, while investment-grade corporations were able to enjoy record low coupons.

Total global high-yield issuance reached $24.6 billion in August, the highest August on record and the eighth busiest month since records began in 1980, according to data provided by Thomson Reuters. The busiest week of all-time took place the week beginning August 8, when $15.4 billion was raised from 29 offerings. This was followed by a significant slowdown for the remainder of the month with no high-yield issuance over the last 10 days of August.

The investment-grade corporate debt market, for its part, saw record low coupons. Across five, 10- and 30-year maturities, nearly all the top 10 record lowest coupons have been issued over the past three months, with the record lowest coupon across all maturities on record offered in August.

Johnson & Johnson issued the lowest coupon on record across both 10- and 30-year maturities in August and eight of the 10 record low coupons for 30-year maturity bonds were issued in August. The health care products company sold $550 million of 2.95 percent 10-year notes and $550 million of 4.5 percent 30-year notes in mid-August.

Despite record activity in the high-yield bond market, global debt capital market activity was down 34 percent from July. At $329.4 billion during August, it was also down 19 percent for the year-to-date period compared with the same period last year. With total offerings of nearly $4 trillion so far in 2010, this is the lowest level of debt issuance for the first eight months of the year since 2004.

The M&A market posted some strong numbers. Global M&A activity hit $267.2 billion in August, the biggest month since June 2009 and the biggest August since 1999 when the announced volume of worldwide M&A reached $274.9 billion, according to Thomson Reuters.

Bolstered by BHP Billiton’s $43.2 billion bid for Potash, targets in the materials sector registered the biggest month for activity since July 2007 when Rio Tinto announced its $43 billion offer for Canada’s Alcan. Year-to-date, M&A activity in the materials sector totals $203.7 billion, accounting for 13 percent of overall M&A activity and up 30 percent over the same period in 2009.

August was also the biggest month for large-cap M&A since 2009, with over $5 billion, which helped Goldman Sachs and JPMorgan move to the top of the year-to-date M&A rankings thanks to their advisory roles on the top three announced transactions in August. Morgan Stanley was in the top spot for the first seven months of the year but fell to third place in August.

Activity in the equity capital markets slowed down in August by 53 percent to $32.5 billion. It’s also down 10 percent from the same period last year. Activity has decreased in all markets so far this year except in Asia, which has seen a 33 percent increase in offerings compared with the same period in 2009. But Asia saw a dramatic decline in monthly activity, with August activity down 59 percent from July, according to Thomson Reuters.

One bright spot in equity was in global venture capital-backed initial public offerings, which saw their highest months since October 2007. Of 12 VC-backed IPOs totaling $3.1 billion, six offerings totaling $2.4 billion were from Chinese companies.

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