Saturday, January 17, 2009
Capital markets update: Is the ice cracking?
The latest email from the capital markets desk at a huge money center bank says that the progress we have seen since just before Christmas is continuing, notwithstanding the weak equity markets (bold emphasis in the original):
Despite the pain still being worked through in the banking sector, the High Yield new issue market continues to improve. We have now priced $2.3 billion across 4 tranches in the last 7 trading days.
For the first time in several months, we are now fielding active reverse-inquiry from many accounts interested in possible new issues.
A major driver of this demand is the performance of the recent notes offerings. These offerings have performed remarkably well in the aftermarket. For example:
The Fresenius Euro tranche that priced yesterday at 8.75% at 93 to yield 10.25%, traded today as high as 102/103, up 9 points (yield down to 8.35%, or 190 bps lower yield); and the Fresenius USD tranche that priced at 9% at 93 to yield 10.50%, traded today to 98.50, up 5.5 points (yield down to 9.31%, or 119 bps lower yield).
The bounce in the Fresenius bonds builds on the impressive trading of all the new issues of late, including the new bonds by MetroPCS (better by 3 points), Cablevision (+ 3 points), Kansas City Southern (+ 15 points), and El Paso (+15 points).
This performance drives returns, and nearly all portfolio managers are now positioning for bigger allocations and more new issues, which is contributing to a healthier marketplace...
As more deals get done, companies will gain confidence that if they ask for money they will get it, and that will allow them to release some of the cash on their balance sheets. As credit-worthy companies pay down their debt, more lending capacity will free up which ought to improve the market still further. Unfortunately, a second leg down caused by the decline in the underlying economy and rising default rates related thereto would strangle this infant capital markets recovery in the crib. Point is, good news is good news, but most of us, including me, still cannot see where all of this leads.
5 Comments:
By 
, at
Sat Jan 17, 12:53:00 PM:
I don't know what a Fresnius bond is so my ignorance is on display for all to see by commenting. If these bonds are trading at 8-9-10% yield aren't we just seeing supply and demand at work? In other words, is there money to borrow if one is just willing to pay a high enough interest rate?
By , at
Sat Jan 17, 04:52:00 PM:
I join feeblemind in displaying my ignorance here. Let me ask this question:
I have been under the impression from readings on the Intertubes that there will be several rolling waves of mortgage defaults over the next 2-3 years.
With every cycle of default, there will be a further crises with the other paper issued (Credit Default Swaps, I think) that were created to "minimize" that risk.
So how much recovery can we really expect in the next 3-4 years, when we are likely to hit more cycles of interbank short term loan crises, etc., which was supposed to be the reason for the $750 billion dollar TARP plan?
Just axin'.
-David
By 
TigerHawk, at
Sat Jan 17, 04:52:00 PM:
Fresenius is a particular company that did a recent bond issuance, not a type of bond.
By Viking Kaj, at
Sun Jan 18, 05:15:00 PM:
Citi sheds Smith Barney and takes a second tranch last week.
B of A goes in for its first helping.
Lot's of bad debts still on the books, and these are not getting written down. We need to take the hit on these. There will be no general recovery until consumer spending recovers. Limited bond issues for semi utility type companies are a symptom of lots of money looking for higher yields, these are not drivers of the general economy.
By , at
Mon Jan 19, 09:30:00 AM:
This discussion will have more clarity this time next year. Maybe.
