| NEW YORK, March 2
NEW YORK, March 2 U.S. junk bond sales posted
their busiest February on record with $15.8 billion of new
issuance as sovereign risk fears receded, and more sales are on
the way, strategists said.
Eastman Kodak EK.N, GMAC, McClatchy Co (MNI.N) and
Reader's Digest Association were among companies taking
advantage of renewed appetite for risk as expectations
debt-stricken Greece would secure financial aid boosted
High-yield bond sales have surged to records every month
since December as companies refinanced debt, getting ahead of a
scramble for funding over the next five years when as much as
one trillion dollars of junk bonds and loans come due.
December's total of $15.7 billion junk bond sales and
January's $16.5 billion total were also records for those
months, according to data from high-yield research firm KDP
"There's certainly a lot of demand from companies that need
to refinance bonds and particularly loans," said KDP president
Kingman Penniman. However, the question is whether the market
keeps its delicate balance between supply and demand, he said.
"As we saw in the first two weeks of February, when it gets
out of kilter you have pressures," Penniman said.
SALES MORE THAN TRIPLE
About six junk bond sales were postponed between late
January and the middle of February as Greece's budget crisis
raised fears that the global economic recovery could be
derailed, prompting a selloff in high-yield bonds.
Prospects of a bailout for Greece, rebounding equity
markets and assurances from Federal Reserve Chairman Ben
Bernanke that U.S. interest rates would stay low for an
extended time have all renewed appetite for risk.
The year-to-date tally of $32.3 billion in junk bond sales
is more than triple the $9.5 billion total for the same period
in 2009, according to KDP.
With bank lending still tight, the high-yield bond market
has been an important source of liquidity that ultimately could
be good for the economy, said John Puchalla, senior analyst for
Moody's Investors Service.
"At some point the risk in a downturn is always that it
continues to perpetuate if companies can't get access to
credit, cut staff and things further spiral downward," he said.
If companies are able to improve liquidity positions, "then
there's less pressure to try to cut costs," he said.
YIELD SPREADS MORE ATTRACTIVE
With the credit markets healing, Moody's is projecting a
sharp decline in the high-yield default rate this year, "and
people start to get comfortable extending credit to riskier
borrowers in that environment," Puchalla said.
The recent pullback in high-yield bonds may have been a
plus for issuance because yields rose to more attractive levels
for investors, strategists said.
Junk bonds on average yield about 6.66 percentage points
more than comparable U.S. Treasuries, up from 5.99 percentage
points in mid-January before sovereign risk roiled the market.
"The feeling of the market has been good," said KDP's
Penniman. "It's a delicate balance between making sure that the
issuer and investor are both being treated fairly."
Even during the record winter storm that hit New York last
Friday, high-yield issuers sold $2.57 billion of bonds,
according to KDP data, and all of the deals performed well,
That should give other companies more confidence to come to
the market, he said.
By refinancing near-term debt with longer-term bonds,
companies are giving themselves more breathing room and
sometimes earning ratings upgrades in the process.
Liquidity ratings, which reflect a company's cash flow and
other sources of liquidity over the next 12 months, have
improved significantly since the high-yield bond market began
recovering last year, according to Moody's data.
Last month alone, Moody's upgraded 10 liquidity ratings for
speculative-grade borrowers and downgraded just one, according
(Reporting by Dena Aubin; Editing by Andrew Hay)