The Late-Year Corporate Bond Blitz Is Finally Set to Abate

Corporate debt sales are finally expected to cool next week due to a typical year-end slowdown, though cheap borrowing costs may be too tempting to bring a complete freeze.

Wall Street syndicate desks are projecting atrickle of about $5 billion of high-grade bond issuance after volume surprised to the upside this week, topping$20 billion. Banks, which tend to sell debt when credit markets are especiallyborrower friendly, have made up about75% of this month’s supply — and it wouldn’t be surprising to see a few financial deals emerge in the coming days.

Companies may also continue to capitalize on rock-bottom yields to whittle away at their debt piles.CVS Health Corp. sold $2 billion of investment-gradebonds this week to fund a tender offer for more expensive outstanding obligations, while high-yield issuerOccidental Petroleum Corp. also priced a similar amount ofnotes for the same purpose.

“The president-elect and promising news on vaccines are helping drive risk sentiment in a positive direction, and with that, the tone in the corporate credit market has followed suit,” said Jon Curran, senior investment manager atAberdeen Standard Investments. “The trading activity you’re seeing now is due to anticipated drying up of liquidity in a few weeks’ time.”

Read more: AT&T, CVS tackle debt loads as corporates switch to deleveraging

Still, after a record-breaking year of issuance, the approaching holidays should mean activity slows. “We could still do a couple of deals come next week, and I really don’t think we’ll see anything the week of Christmas,” said Erin Lyons, co-head of U.S. investment-grade research atCreditSights. “Everyone’s ready to call it.”

Aftermore than $13 billion of junk bonds were sold this week, high yield appears ready to take a breather as well. But with yields still near record lows, and anything from previouslywithdrawn deals to risky debt with ratings in theriskiest CCC tier getting snapped up by investors, new bond sales can’t be ruled out.E.W. Scripps Co. may come forward, with S&P Global Ratings alreadygrading a future transaction comprised of $700 million senior secured and $500 million unsecured offerings.

The leveraged loan market has been just as hot, dominated by buyout financings where private equity firms have been able toslash borrowing costs. There are no bank meetings scheduled, but about 20 offerings are set to price with refinancing deals fromEnergizer Holdings Inc. andAsurion LLC among those expected to wrap, as well as Scripps’ loan to fund its acquisition of ION Media.

In the distressed debt space, several companies have significant dates approaching includingTransocean Inc., which has a bondpayment due.Ferrellgas Partners LP, which isplanning to place some of its units in bankruptcy, also has a debt payment deadline in the coming days. New York Sports Clubs ownerTown Sports International Holdings Inc. has a hearing in its bankruptcy restructuring next week.

Finally, the U.S. Federal Open Market Committee starts a two-day meeting on Tuesday to discussnext steps for monetary policy. Market participants will also be watching bipartisan talks on apandemic relief bill in Congress. Negotiations have hit a snag just as the coronavirus infects Americans at aterrifying pace.

— With assistance by Lara Wieczezynski, Michael Gambale, Katherine Doherty, and Jeremy Hill

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