High-Yield Issuance Hits 30-Month Peak
Platt, Gordon, Global Finance
Companies rushing to refinance bank loans borrowed more than $24 billion in the high-yield debt market in the United States in May, the most since November 2006, according to Montpelier, Vermont-based KDP Investment Advisors.
Many of the companies increased, and even doubled, the size of planned offerings to take advantage of the strong appetite for risk in a market that had been completely shut down in November 2008, at the depth of the credit crisis. While speculative-grade companies are paying high rates to tap the market, they are extending the maturity of their outstanding debt and gaining breathing space at a time when corporate default rates are rising.
The global speculative-grade default rate rose to a seven-year high of 9.2% at the end of May from 8.3% in April, according to Moody's Investors Service. The default rate could reach 13.8% in the fourth quarter of 2009, the rating agency predicts. The US speculative-grade default rate, which is higher than the global rate, was 10.2% in May, up from 2.2% in May 2008.
Strong investor demand for high-yield bonds continued even after General Motors filed for Chapter II bankruptcy protection on June 1. GM's bankruptcy filing was the largest ever for an industrial company. The automaker said it had $173 billion in debt and $82 billion in assets.
Corporate refinancing needs are set to rise sharply in the period from 2011 to 2014, when nearly $1. …