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Corporate bond issuance near record: Standard & Poor’s

by Ekaterina Skulskaya | Apr 15, 2014

Investors continued to provide strong support for corporate bond markets around the world in 2013, allowing companies to issue a near-record volume of bonds and easily cover the cost of their maturing debt, according to ratings agency Standard & Poor’s.

In its latest Credit Trends report, the agency said companies had issued the second-highest volume of bonds ever last year, at US$3.3 trillion worldwide, up from $3.1 trillion in 2012.

It said strong investor demand was good news because it would allow companies to fund growth and avoid a credit crunch brought on by the large amount of debt that would mature in the next few years.

“Continued investor interest in the credit markets is important because companies’ maturing debt in 2014 and the coming years is significant, on top of their new capital needs,” Standard & Poor’s said.

“We estimate that about $8.9 trillion in corporate rated debt is scheduled to mature between 2014 and 2018, about $1.6 trillion of which is due in 2014.”

Maturing debt will escalate in the succeeding years to approximately $1.8 trillion in 2015, $1.9 trillion in 2016 and about $1.8 trillion in both 2017 and 2018.

Standard & Poor’s said that with $527 billion in corporate bonds issued already this year, it was likely that a portion of the 2014 maturities had already been refinanced. This was despite a slowdown in issuance in February to $222 billion from $305 billion in January.

The slump in February was almost entirely due to issuance from financial companies falling 44% to $104 billion.

Of the total corporate bonds due to mature through 2018, financial companies account for slightly less than half of the total. About 79%, or nearly $7 trillion are the lowest-risk “investment grade” bonds, rated BBB- or higher.

During 2013, financial companies issued $1,530 billion of debt. Of this, $997 billion was investment grade, which was up from $913 billlion in 2012.

Approximately $107 billion was “speculative”, meaning it was rated BB+ or lower, up from $79 billion, and $425 billion was not rated, down from $538 billion.

European and US companies issued 67% of the total global corporate volume in 2013, reaching $1.118 trillion and $1.082 trillion respectively. Companies from emerging markets issued $707 billion in debt in 2013, more than double $347 billion in issuance by countries in the “Other Developed” category including Australia, Japan, Canada and New Zealand in the same year.

Non rated issues from emerging market countries totalled $323 billion. This compared to $64 billion of investment grade and $47 billion of speculative grade from the same markets. Almost 60% of non-rated issues came from other developed countries; while investment grade and speculative grade shared $42 billion and $17 billion respectively (see Table 1).

Standard & Poor’s report also highlighted that the share of new bond issuance by non-financial companies increased to almost 40% in recent years, compared to less than 24% in 2008 and the years before the global recession.

Speculative grade debt has comprised more than 10% of new bond issuance so far in 2014 and was 14% of all debt in 2013, a significant increase from 3% in 2006 and 2007.