More Junk Borrowers Lean Towards Bonds in Buoyant Market
2020-07-07 11:06:02.190 GMT
By Marianna Aragao
(Bloomberg) — Baltic telecom operator Bite is the latest
junk-rated company to opt for bonds over loans when issuing new
debt, a move that’s becoming more popular since the credit-
market crash earlier this year.
The firm is raising 620 million euros ($698 million) of
notes to help refinance its whole capital structure, currently
comprised of term loans. In addition, security company Verisure
is planning to raise other senior secured debt, with investors
expecting it to take the form of bonds, as part of a 1 billion-
euro refinancing deal that launched this week.
The preference for bonds over loans comes from the more
competitive pricing for fixed-rate instruments, strong investor
appetite for fresh paper and reduced CLO issuance this year,
according to analysts. CLOs are a key component of demand for
newly-issued loans.
Loan-to-bond transactions have surged to a record 55% of
total junk bond issuance in Europe this year, according to an
analysis by research firm Spread Research on July 3.
BlackRock, Goldman See Europe’s Junk Issuers Pivot to Bonds
Recent deals showing issuers’ preference for bonds include
BMC Software Inc. and Merlin Entertainment Ltd, which raised the
instrument instead of loans in May, having tapped both markets
in the past. In June, packaging firm SIG Combibloc shifted part
of its debt stack, previously dominated by loans, to bonds.
“Monetary policy easing cycle and lower rates make floating
rate coupons less attractive in general,” JPMorgan credit
analysts wrote in their mid-year credit outlook. “This points in
favor of a greater share of primary activity taking place in the
bond market.”