April 27 (Bloomberg) -- Global corporate bond issuance is poised for the slowest April in six years as companies reduce their reliance on debt markets while sitting on cash reserves that are about the highest on record.
Company bond sales worldwide have declined 48% to $210.6 billion through yesterday, the least for an April since 2006, according to data compiled by Bloomberg. The slowdown follows a record $1.17 trillion of deals in the first quarter, when strains from Europe’s debt crisis eased and companies borrowed at interest rates that approached the lowest ever.
Bank of America Corp. and Morgan Stanley followed Fairfield, Connecticut-based General Electric Co. in plans to cut bond offerings as net debt falls at the two banks. Corporations have been repairing balance sheets and increasing cash reserves as a gradually improving global economy helps companies recover from the biggest financial crisis since the Great Depression.
“A lot of companies have a tremendous amount of cash at hand to run the normal course of operations, and the ones that needed to tap the market have already done so,” Jody Lurie, a corporate credit analyst at Janney Montgomery Scott LLC in Philadelphia, said in a telephone interview. “The only need to tap the market right now is for shareholder rewards or acquisitions.”
‘Flush With Cash’
The ratio of cash to total assets for companies in the Standard & Poor’s 500 Index has held at about 10% after reaching a record 10.3% in September, Bloomberg compiled data show. The ratio is up from 5.6% in April 2007. Net debt dropped to 2.2 times earnings before interest, taxes, depreciation and amortization at the end of March. The figure was at 5.1 times before the collapse of Lehman Brothers Holdings Inc. in September 2008, Bloomberg data show.
“Companies are flush with cash and have already termed out their liquidity,” said Ashish Shah, head of global credit investments at AllianceBernstein LP in New York. Given the strong demand in the first quarter, “companies were happy to issue into that given low rates,” which fell to as low as 4.12% in March, according to Bank of America Merrill Lynch’s Global Broad Market Corporate & High Yield Index.
Elsewhere in credit markets, Repsol YPF SA, the Spanish oil company whose Argentine unit was snatched by the Buenos Aires government, is putting in safeguards to prevent a wave of defaults on more than $7 billion of bonds. A gauge of U.S. corporate credit risk fell for a fourth day as better-than- estimated quarterly earnings stoked optimism the economy is firming.
Bonds of Molson Coors Brewing Co. were the most actively traded dollar-denominated corporate securities by dealers as of 11:19 a.m. today in New York, with 84 trades of $1 million or more, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The Montreal- and Denver-based brewer issued $1.9 billion of bonds yesterday to help pay for its intended acquisition of StarBev LP of Prague.
The Markit CDX North America Investment Grade Index of credit-default swaps, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, declined 1.3 basis points to a mid-price of 94.8 basis points, according to prices compiled by Bloomberg. The gauge has dropped from 104.3 on April 10, the highest level since Jan. 20.
In London, the Markit iTraxx Europe Index of 125 companies with investment-grade ratings fell 5 to 138.