Capital Markets

Capital Market Issuance Up 13 Percent

Corporate bond issuance jumped 23.6 percent compared with the first quarter last year; total equity underwriting of common and preferred stock jump...
Stephen TaubMay 17, 2007

Issuance of new securities into the U.S. capital markets rose 13 percent in the first quarter, to $1.78 trillion, compared with the same period last year, according to a new report from the Securities Industry and Financial Markets Association.

SIFMA also reported that corporate bond issuance jumped to a record $308 billion, up 23.6 percent from the first quarter of 2006. Total bond issuance for 2007 may approach last year’s record of $1 trillion, added the association, which noted the driving forces of merger-and-acquisition and leveraged-buyout financing.

Total equity underwriting of common and preferred stock jumped 42.6 percent compared with the year-ago period, to $61.4 billion, on 202 deals. Though the dollar total slipped from the $61.7 million in the fourth quarter of 2006, this marked the first time $60 billion of equity was raised in consecutive quarters in nearly seven years, according to SIFMA.

The association expects favorable market conditions to continue. “Weakness in the housing sector appears to be contained,” said Michael Decker, a SIFMA managing director, in a statement. “The interest rate environment is stable, the economy continues to grow, and corporate profit growth is still on track.” Decker also noted that a healthy stock market and positive corporate credit trends will support continued growth in securities issuance.

Looking further at the corporate bond market, SIFMA pointed out that gross issuance exceeded redemptions by a wide margin in the first quarter. Refinancing stood at just 32 percent of high-yield issuance, the lowest level in 25 years.

By contrast, high-yield financing for mergers and acquisitions and leveraged buyouts accounted for 43 percent of the high-yield total, on pace to surpass last year’s total by $12 billion and attain the largest such share in 18 years.

Capital spending will be a less important driver of corporate bond financing, SIFMA stated, since corporations have built up significant levels of internally generated cash flow.

SIFMA also observed that in the first quarter, $9.4 billion was raised in the initial public offering market, less than half the $19.2 billion in a strong fourth quarter of 2006. Compared with the first quarter of 2006, however, “true IPOs,” which exclude closed-end funds, climbed modestly from $9.1 billion, SIFMA noted.

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