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.
Research from two UK business schools suggest debt-funded share buybacks boost the share price in the short-term and also the company’s performance longer-term.
A report from the Chamber of Commerce and the Confederation of British Industry sets out strategies for businesses looking ahead to the end of the decade.
European investors have proved more cautious this year, but Asian funding has reached a new high.
The government’s decision to withdraw 500 and 1,000 rupee notes has created a liquidity crisis, with ATMs across the country running out of cash.