Capital Markets

Junk Issuance Set Record in 2004

Last year certainly offered a good climate for raising capital, especially by less-credit-worthy companies.
Stephen TaubJanuary 4, 2005

Issues of new high-yield bonds in 2004 reached a record $140 billion by mid-December, eclipsing the $136 billion raised in 2003, according to the Financial Times, which cited data from Thomson Financial.

The proportion of triple-C rated debt rose to 17.1 per cent in 2004 from 8.7 percent a year earlier, added the report, citing Deutsche Bank.

Very low interest rates certainly played a big role; so did the huge surge in mergers-and-acquisition action. In addition, investor demand drove up prices and narrowed the premium over Treasuries to historically low levels, the FT pointed out. Indeed, high-yield bonds racked up returns last year of nearly 11 percent, according to Lehman Brothers. As the year wound down, however, mutual funds were reporting a surge in outflows from junk-bond funds, said AMG Data Services.

The increased popularity of floating-rate notes, coupled with rising interest rates, added to the surge, according to The Wall Street Journal. Floating issues enjoyed a market share close to 7 percent of total junk-bond new issuance in 2004, compared with just 2.9 percent in 2003 and 0.4 percent in 2002, added the paper. (As for investment-grade floating-rate issues, the Journal also reported that last year they exceeded fixed-rate offerings for the first time ever.)

Citigroup was the number-one junk-bond underwriter by dollar value — overtaking number-two Credit Suisse First Boston for the first time in a decade, reported the FT — although CSFB remained the top underwriter by number of deals, according to the bank.