Bond Flipping Picks Up In Early 2007 Deja Vu

The credit market is on fire, as is proof that greater fool theory is alive and well. Yesterday saw the placement of 3 high yield issues at a much more reasonable original issue discount, and yet accounts were swarming like flies on excrement with lipstick. All three issues have immediately generated about 1-2 points return post break, leading many original allocators to flip their holdings to naive secondary market bidders. With equities and treasuries both now considered "unreliable" investments, and investment grade trading at October spreads (IG11 at 197 last), it seems HY is the final bubble available to plunk any excess cash, before everything goes to hell.

Summary of yesterday's festivities:

HCA's $310 million 9.875% BB-/B2 second-lien notes due 2017 was placed at 96.67, now bid at 98.5.

Chesapeake Energy's $425 million 9.5% BB/Ba3 notes due 2015 were issued at 97.75, now bid also at 98.5. The bond was upsized by $125 million, bringing the total outstanding in the series to $1.425 million. The original $1 billion was placed in late January at 95.07.)

Forest Oil's $600 million 8.5% BB-/B1 senior notes due 2014 were priced at 95.15, to yield 9.75%, and have since risen to 97 bid post-break. Sphere: Related Content

Bookmark this post with:

• 
• 
• 
• 
• 
• 
• 
• 
• 

Who Says Nobody is Issuing Debt

A statistic that may surprise some, is that January 2009 has seen a record amount of new Investment Grade issues: $104 billion so far. This easily surpasses the 2008 total of $83 billion. Granted, of this tally $61 billion is FDIC-guaranteed paper, but the $43 billion non-financial balance is still much higher than the $28 billion comparable in 2008 and $11 billion in 2007. Even more surprising is that 56% of new issues were BBB rated, up from 25% in December. This is summarized below:

And while the high yield market is not quite as active as the HG market, it is starting to ramp up. So far in January (and this excludes yesterday's $700 million in deals from Chesapeake (BB) and Inergy(B+)), there has been $4 billion issued in 6 deals. This compares to one deal in October (MGM), none in November and two in December (KSU and EP). New issue prices continue to reflect distressed levels, with new issuance spreads over 1,000 bps, and coupons in 8-9% range.

One other statistic: all bonds issued in the past 4 months were issued at a discount to par, with January discounts varying from 7-11 pts, pushing yields 200bps from par levels to an average of 11.8%.

As for secondary market levels: the HY BB index is averaging about 13.3% yield, while single Bs are at 16.7%.

Sphere: Related Content

Bookmark this post with:

• 
• 
• 
• 
• 
• 
• 
• 
•