Ahead of the rate rise for the first time since the 2008 financial crisis, corporate debt offerings have increased US issuance to record levels because more and more companies are looking to finance big ticket acquisitions.
So far, the Financial Times reports, US multinationals have raised more than $132 billion in deals that are termed as “jumbo” this year. According to Dealogic, this figure has increased by four from last year and organisations such as Microsoft, Hewlett-Packard Enterprise and UnitedHealth have taken advantage of the low interest rates.
Corporate deal debt has now buoyed in the US to a record $815 billion and the increased appetite for debt offering that has been used to fund acquisitions, buy back stock and pay for dividends has in turn, lead to bond funds increasing in size, according to the FT.
Co-head of credit at Hermes Investment Management, Mitch Reznick comments on this situation. “It’s two years of incredible issuance flows. It’s driven by a desire to get financing done ahead of lift-off and a lot of this is going into M&A. The issuance just continues and continues,” Reznick said.
The FT also reports that ratings agencies have warned of the increasing number of leverage companies that have been used to fund these large acquisitions and investors are uncertain about the level of debt.
A portfolio manager with JPMorgan Asset Management, Andreas Michalitsianos said that there is cause for concern here. “It’s all well and good when growth is good and bails you out of high debt but you need a perfect environment for that kind of leverage,” Michalitsianos said.
The next nine weeks are a good moment for companies that would like to raise cash as the Fed is expected to meet in December and decide whether or not interest rates will be increased for the first time in nine years.
A global survey of 200 corporate treasurers by Temenos and Ovum shows that many expect at least some banking services to relocate away from London.
A total of US$4.88 trillion of debt has been sold so far this year reports Dealogic, close to the level of 2007 when US$4.91 trillion of bonds were issued over the same period.
A report by broking group Marsh examines the repercussions from the administration of the South Korean company, which filed for bankruptcy protection at the end of August.
Global research by C2FO suggests that smaller businesses are less concerned with the repercussions of Brexit and the upcoming US presidential election.