Bond and loan issuance is down as banks offload debt on the cheap

Hi Aaron Weinman here. Weak investment banking earnings have dampened recent bank earnings figures.

Much of the slump in transactions can be attributed to the corporate credit market. This is where I cut my teeth as a journalist and thought I’d stop by today unpacking what’s going on there.

Let’s go.


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Wall Street Stock Markets

Wall Street has been hit by a brutal market sell-off this year.

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1. Investment Bank revenues have fallen last quarter as transactions slowed. High-yield bond issuance is down nearly 80% this year from this time in 2021, and investment-grade deals are down about 17% for the same period, Joyce said. financial markets strategist for MUFG, during a media roundtable on Wednesday. .

Market volatility, rising borrowing costs and soaring inflation have left dealmakers paralyzed, with companies avoiding a bond market and more expensive government loans.

“A lot of companies we talk to don’t need to issue debt for one or two years,” Joyce said.

While the slowdown in transactions is worrisome, it’s important to remember that businesses made hay while the sun shone in 2020 and 2021. The Fed’s decision to keep rates near zero meant that borrowers indebted for everything from acquisitions to refinancing old debts.

So it should come as no surprise that trading has slowed and many bankers are worried about their job security. During the boom period of lower-rate bonds and loans in 2020 and 2021, many companies quickly took on debt that doesn’t mature until 2027 or 2028.

Indeed, only $95 billion of investment-grade bonds are maturing this year, and only $13 billion of high-yield debt and $15 billion of leveraged loans are maturing this year, according to Fitch. Ratings. That rises to $258 billion next year in investment-grade bonds, but maturities are lower at $50 billion each in high-yield bonds and leveraged loans for the next two years.

“Companies have been able to extend their runway in terms of liquidity needs,” Steven Oh, global head of credit at PineBridge Investments, told Insider. “Only those under significant stress may need to enter the market in the coming months.”

And accessing the market right now is difficult. A high-yield bond that might have charged around 4% or 5% interest is now costing some borrowers more than 10%, capital markets bankers have said.

Another pain point for these bankers is the debt they have had to hold on their balance sheets. Typically, a bank will underwrite a transaction for a client and then sell that debt to institutional investors through a bond or loan. Banks posted about $1.3 billion in losses last quarter on corporate debt commitments that have not yet been sold to investors, Bloomberg reported.

Opportunistic investors also know the ball is in their court right now and can take on that debt inexpensively.

Take Cornerstone Building Brands. Private equity firm Clayton, Dubilier & Rice agreed to buy the company for nearly $6 billion in March. It is currently raising about $1 billion in loans and bonds to back the buyout, but the debt is being offered to investors at 90 cents on the dollar and yielding about 11%, a banker familiar with the deal said.

You can also watch Elon Musk’s Twitter saga. Those same markets are what he would need if he were to complete his purchase of Twitter. Some $10 billion of that $44 billion deal would be raised in corporate credit, but right now — whether he has to buy Twitter or not — that’s no small feat.

“Borrowers are going to have to accept that this is the new funding rate,” said Viktor Hjort, global head of credit strategy and analysts at BNP Paribas, during a press conference at the bank’s offices. French in New York earlier this month.


In other news:

Anthony Scaramucci SkyBridge White House Donald Trump

Anthony Scaramucci heads investment firm SkyBridge Capital.

The Washington Post/Getty Images


2. Anthony Scaramucci’s SkyBridge is launch of a venture capital fund focused on Web3 and cryptography. The new fund plans come just days after SkyBridge’s Legion Strategies fund halted customer withdrawals.

3. The do-good investing phenomenon is under the microscope. As companies remain committed to ESG strategies, regulators are cracking down on greenwashing and the market downturn is hurting ESG funds. Insider has been following everything related to ESG investing and sustainable finance.

4. Judgment day may be on the horizon at Goldman Sachs. The bank and a group of women suing Goldman have reached an agreement to unseal their claims of harassment and discrimination, according to this Capital & Main report.

5. Emma Rose Bienvenu, chief of staff at crypto hedge fund Pantera Capital, is influencing digital asset policy. Here’s how she deals with lawmakers and regulators.

6. BlackRock buys Vanguard Renewables for $700 million, The Wall Street Journal reported. The Massachusetts-based company works with dairy farmers and food companies to convert food waste and cow manure into an energy source.

7. JPMorgan is getting into the direct lending business, according to the Financial Times. The bank’s leveraged lending unit will underwrite and hold debt for certain middle market transactions rather than syndicate the money to third-party investors in the bond market.

8. Tesla, GM and Rivian are banking on the $360 billion battery business to support their electric vehicle plans. But battery makers are struggling to produce enough supply.

9. Gerd Kommer, founder of Kommer Invest and one of Germany’s best-known financial experts, explained why “factor investing” generates strong returns. The asset manager and ETF expert also explained why picking stocks might not be worth the hype.

10. Food-tech ChowNow chief executive Chris Webb went “cold turkey” on venture capital. He told Insider he had become “addicted” to cheap venture capital, but to prepare for a recession he laid off 97 workers last week.


Offers concluded:

Organized by Aaron Weinman in New York. Tips? E-mail [email protected] or tweet @aaronw11. Edited by Hallam Bullock (tweet @hallam_bullock) in London.

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