財經觀察 1994 --- US Corporate Borrowing Costs Fall to Lowest Since

U.S. Corporate Borrowing Costs Fall to Lowest Since October
2009-04-24 12:58:27.678 GMT

By John Detrixhe
     April 24 (Bloomberg) -- Corporate borrowing costs fell this week to the lowest since October amid signs that government efforts to repair broken credit markets are working.

     The extra yield investors demand to own corporate debt instead of Treasuries fell to 698 basis points as of yesterday from the December peak of 896 basis points, according to Merrill Lynch & Co.’s U.S. Corporate and High Yield index. That represents an average yearly company savings of $19.8 million for every $1 billion of bonds sold.

     The cost for companies to fund themselves has fallen amid speculation that the economy’s decline has reached a bottom, spurring investors to buy riskier debt with higher yields, said Bill Larkin, a portfolio manager at Salem, Massachusetts-based Cabot Money Management, which oversees $500 million of assets.

The Federal Reserve and U.S. government have pledged $12.8 trillion to boost the economy and consumer spending.
     “It looks like we’re in or coming out of that bottoming process, which is healthy for corporate bonds,” Larkin said in a telephone interview. “The risks of another blowup are falling.”

     Investment-grade yields relative to benchmark rates fell 12 basis points this week to 520 basis points as of yesterday, the lowest since Feb. 16, according to Merrill’s U.S. Corporate Master Index.

     Overall investment-grade yields fell 0.12 percentage point to 7.51 percent, according to the Merrill index.

                        Slowdown Arrives

     “We were expecting a slowdown in new issuance activity following the record volumes of the first quarter, and we’ve seen that,” said James Merli, head of U.S. fixed-income syndicate at Barclays Capital in New York. “The slowdown has been healthy for credit spreads, in that they’ve rallied during this quiet period.”

     Investment-grade companies sold $10.1 billion of debt this week, Bloomberg data show. That’s down 43 percent from $17.6 billion the week before.

     Interbank lending spreads fell to the lowest this week since before the collapse of Lehman Brothers Holdings Inc., signaling efforts by Federal Reserve Chairman Ben S. Bernanke to repair broken credit markets may be working.

     The difference between the London interbank offered rate and the expected average federal-funds rate over the next three months, known as the Libor-OIS spread narrowed to 0.87 percentage point today, matching the difference on Sept. 12.
Lehman filed for bankruptcy protection on Sept. 15, prompting the spread to widen to 3.64 percentage points on Oct. 10.

                         Small-Cap Challenge

     Former Fed Chairman Alan Greenspan said in June that the Libor-OIS spread was the best way to tell when lending returned to “normal.” He said it would need to narrow to about 25 basis points, or 0.25 percentage point, for that to happen.
     “Credit markets are only operating properly for the most viable companies,” Larkin said. “If you’re a large-cap company you’re not going to have any problems whatsoever. It’s the small-cap companies that really face a challenge right now.”
     Toledo Edison Co., the Akron, Ohio-based unit of FirstEnergy Corp., was among investment-grade companies issuing debt this week with its offering of $300 million of 11-year,

7.25 percent first-mortgage bonds that priced to yield 437.5 basis points more than comparable-maturity Treasuries, Bloomberg data show.

     Jersey Central Power & Light Co., also a unit of FirstEnergy, sold $300 million of 10-year, 7.35 percent notes on Jan. 22 that priced at a 475 basis-point spread.

                        Positive Returns

     Corporate bonds including reinvested interest have returned 3.2 percent since March 31, according to Merrill’s U.S.
Corporate and High Yield index. That’s the second month in a row of positive returns putting April on track to have the best month of returns this year.

     Export Development Canada, the nation’s export-financing arm, issued $1 billion of five-year 3.125 percent notes that priced to yield 135.8 basis points more than similar-maturity U.S. Treasuries, Bloomberg data show.

     High-yield companies sold $2.4 billion of bonds this week, down 23 percent $3.1 billion last week, Bloomberg data show.

     Encore Acquisition Co., based in Fort Worth, Texas, sold  $225 million of 9.5 percent senior subordinated notes due 2016 that priced to yield 11.13 percent, Bloomberg data show. The oil and natural-gas firm last issued debt in November 2005, when it sold $150 million of 12-year, 7.25 percent notes that paid a 302 basis points spread.

                        High-Yield Demand

     “As people seek yield, and more people put money in high yield, that will help companies in that segment get access to capital,” Larkin said. “The high-yield bond issuance will start to get more active.”

     Yields over benchmark rates on speculative-grade debt rose 12 basis points this week to 15.17 percentage points as of yesterday, according to Merrill Lynch & Co.’s U.S. High Yield Master II index. Yield rose 0.04 percentage point to 16.99 percent.

     High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and lower than BBB- by Standard & Poor’s
     Dow Chemical Co., the largest U.S. chemical maker, is among companies that may issue bonds. The chemical company may sell $4.3 billion of debt as part of a plan to finance its acquisition of Rohm & Haas Co. and maintain its investment-grade credit ratings, Chief Executive Officer Andrew Liveris said March 9.