(BN) U.K. Junk Bonds Feel Heat as Brexit Clock Ticks Toward Deadline (October 2019)2019-10-11
By Laura Benitez and Antonio Vanuzzo
(Bloomberg) — Pressure is mounting on the riskiest corners of the U.K. debt market as the clock runs down on British membership of the European Union with limited signs of a divorce settlement.
Bonds issued by companies vulnerable to economic disruption in the U.K., including retailers and automakers, have fallen throughout the week. A brighter mood surrounding talks between the U.K. and Irish governments yielded only a partial recovery across the high-yield market on Friday, amid ongoing fears of a sterling collapse and disruption to supply chains.
Junk debt from Boparan Holdings, which owns some of Britain’s best-known food brands, and retailers dependent on U.K. consumer sentiment such as fashion chain Matalan Ltd, were among names selling off.
“Many of the U.K. names that have sold off recently were already stressed and had problems outside of Brexit-related issues anyway,” said Martin Davies, a senior portfolio manager at London asset manager CQS.
Boparan’s 330 million pounds ($411 million) of bonds due July 2021 fell six pence on the pound through the week and were quoted at a little more than half their face value on Friday. A year ago, they traded at about 86 pence in the pound, according to data compiled by Bloomberg.
Matalan’s 350 million pounds of bonds due January 2023 have fallen two pence since Monday, to 87 pence. The company, which reports results next week, has already warned of weak seasonal sales, but Brexit uncertainty is adding further risk, according to Bloomberg Intelligence analyst Louise Parker.
Aberdeen Standard Investments has sold holdings of Getlink SE, the company that operates the undersea rail link between Britain and France, according to Ben Pakenham, deputy head of European high-yield and global loans at asset manager. Aberdeen has also reduced other names with potential exposure to Brexit fallout, including carmaker Jaguar Land Rover Automotive Plc, Pakenham said.
Separately, the bonds of Aston Martin Lagonda Global Holdings Plc, another British luxury car brand, slid to a record low of 84 pence this week. In September, the company raised new debt to see it through tough trading conditions, but had to agree to pay a whopping 12% coupon on the bonds.
“Brexit makes U.K.-focused issuers more fragile, particularly those who are already in a difficult situation,” said Anthony Giret, an analyst at Spread Research.