Gross corporate bond issuance totaled $421.4 billion in the first six months of this year, up from $359.4 billion in the first half of 2005. Net new issuance has accounted for much of the growth in corporate borrowing this year, a reversal of recent trends, when most of the supply coming to market was the result of refinancing existing debt, according to the associations latest quarterly research report. Surprisingly, issuance of mortgage-related securities rose 16.6% in the first half of this year, as consumers continued to take out new home mortgages and refinance existing mortgages, even though long-term interest rates rose.
The association forecasts that bond issuance will continue to climb during the remainder of 2006. The US economy should continue to expand this year, although at a subdued pace, with business spending leading the way, it says.
Investor demand for longer-maturing assets and market confidence in the Federal Reserve will work together to keep interest rates in check, says Michael Decker, senior vice president and head of research and policy at the association. This, in turn, will help generate issuance growth, especially in high-quality sectors and among issuers looking for new funding rather than refinancing, he says.
Even taking into account corporate cash positions built up during the profit boom, issuance of debt should remain strong for the balance of the year, Decker says. Capital spending has been running ahead of internally generated cash flow.
The biggest high-yield issue in July was by Milwaukee, Wisconsin-based Rexnord, which is a subsidiary of RBS Global. The company sold $485 million of senior notes due in 2014 and $300 million of senior subordinated notes due in 2016 in a private placement.
The proceeds of the offering, together with an equity investment by an affiliate of Apollo Management and borrowings under new senior secured credit facilities, will be used to finance Apollos purchase of RBS Global from The Carlyle Group, a Washington, D.C.-based global private equity firm. New York-based Apollo is also a private equity firm. The $1.8 billion purchase of RBS Global, a manufacturer of power transmission components and conveying equipment, was announced in May and is expected to close in the third quarter.
Carlyle bought Rexnord from UK engineering company Invensys for approximately $880 million in the second half of 2002. In April of this year, Rexnord agreed to buy Falk, a Milwaukee-based maker of gears and couplings, from Hamilton Sundstrand for $295 million.
|TOP US HIGH-YIELD ISSUES IN JULY 2006|
|Issuer||Offer Date||Coupon %||Issue Type||Maturity Date||Private/Public||Amount ($millon)|
|NTL Cable||7/18/06||9.125||Senior Notes||8/15/16||Public||550|
|Rexnord||7 /14 /06||9.500||Senior Notes||8/1/14||144A||485|
|Verso Paper Holdings||7/26/06||9.125||
|H&E; Equipment Services||7/28/06||8.375||Senior Notes||7/15/16||144A||250|
|Verso Paper Holdings||7/26/06||Floating-rate Notes||8/1/14||144A||250|
|Mobile Services Group||7/20/06||9.750||Senior Notes||8/1/14||144A||200|
(Sec., 2nd Priority)
|Phibro Animal Health||7/27/06||10.000||Senior Notes||8/1/13||144A||160|
|Petrohawk Energy||7/24/06||9.125||Senior Notes||7/15/13||144A||125|
Source: KDP Investment Advisors