Americas: Rush to refinance debt appears to be ending, The

Global Finance, Sep 2003

CORPORATE BONDS

The decline in interest rates to 45-year lows in the first half of 2003 triggered a rush of corporate bond issuance that may detract from the volume of new issues in the second half, analysts say.

Most companies already have satisfied their projected refinancing needs for this year, says Richard Salditt, corporate bond strategist at Citigroup in New York.

"We do expect supply to trend lower throughout the remainder of the year relative to the blistering pace in the first half," Salditt says.

While recent activity in the technology, metals and auto-supply sectors suggests that mergers and acquisitions are beginning to pick up, any bond issuance related to the M&A business is not expected to affect issuance volumes to any great extent, he says.

Meanwhile, the recent rise in interest rates on signs of a recovery in US economic growth suggests that opportunistic refinancing should also begin to slow Salditt says.

Gains in the stock market and expectations of faster economic growth have begun to curb demand for fixed-income investments, but insurance companies and pension funds are still avid buyers of long-duration bonds, analysts say.

In the high-yield sector, the improving economy and stronger corporate earnings are helping to strengthen companies' balance sheets and keeping spreads to US Treasury issues narrow.

US high-yield new-issuance volume totaled a robust $16.5 billion in June 2003, down only slightly from the record $18.4 billion of new issues a month earlier, according to Vermont-based KDP Investment Advisors.

Tulsa, Oklahoma-based Williams Companies, a natural gas utility, offered $800 million of senior unsecured notes in June. The issue was increased from an originally planned $500 million.

The company said it would use the net proceeds to improve corporate liquidity, for general corporate purposes, and to repay maturing debt obligations.