US Chart of the Week: 29th May 2020
US high yield bond issuance has already surpassed the USD 76bn recorded in the first quarter of 2020, with roughly USD 79bn issued since the markets reopened in April. While the market was largely shut down by the coronavirus (COVID-19) pandemic in March, April saw cash-strapped companies pile into the market as USD 41bn of deals priced. The trend has continued throughout May, which has seen more than USD 38bn to date and will likely surpass April issuance by month-end. The influx of companies seeking liquidity in the wake of the pandemic has in turn shifted the focus of the market.
In the first quarter of 2020, roughly 15% of high yield bonds were issued for general corporate purposes (GCP), a figure that has ballooned to 58% since April as many companies have turned to the bond market to address capital needs in the uncertain economic climate. M&A and buyout activity has remained muted, falling to 3% of issuance in 2Q20 from 11% in the first quarter. Refinancing activity has dropped sharply to USD 9.9bn from USD 32.7bn, while the portion allocated to debt repayment has moved higher. Addressing existing debt has remained a significant theme in the overall market, however. The average tenor of new issuance has also fallen to 73 months from 89 during this time as lenders seek to limit long-term exposure to the most at-risk borrowers.
Many issuers tapping the HY market for liquidity operate in industries hit hardest by the COVID-19 outbreak. Notable GCP deals include Uber Technologies’ unsecured bond and subsequent add-on issued to fund GCP and working capital at a 7.5% coupon, Boyd Gaming’s unsecured notes paying 8.625%, Live Nation’s 6.5% secured bond, and Good Year’s 9.5% guaranteed paper.
by Vincent Daigger
