Capital Markets

Record Week for Corporate Debt Sales

In "a race for capital," financial companies accept the highest yield on debt in seven years.
Stephen TaubApril 25, 2008

Perhaps desperate times call for desperate capital moves. Companies sold a record amount of bonds this week — more than $40 billion worth of investment-grade and high-yield debt, according to Reuters. Bloomberg counted it closer to $43 billion.

Last week bond sales were $31.2 billion, and the weekly average so far this year is just $18 billion, Bloomberg noted.

Many of the companies that tapped the capital markets were looking to strengthen their balance sheets. Banks and securities firms sold 88 percent of the investment-grade debt this week, according to Bloomberg. In fact, financial companies were forced to accept the highest yields since May 2001.

“We’re seeing a race for capital,” Rizwan Hussain, director of credit research at Morgan Stanley, told Reuters. For example, on Tuesday Merrill Lynch sold $7 billion in debt, which Reuters said was the second-largest investment-grade sale this year, citing Dealogic. Altogether, the company raised $9.55 billion by issuing debt and preferred securities.

Citigroup sold $6 billion of hybrid bonds in its largest public debt offering, Bloomberg noted. Other investment banks that sold debt this week include UBS and Wachovia.

The average spread between investment-grade debt and Treasuries was 268 basis points. That was down 9 basis points from the previous week and the lowest since March 5, according to Bloomberg, citing Merrill Lynch index data. However, yields rose to 6.13 percent, the highest since August.