Bloomberg News

U.S. Company Bond Sales Tumble in August to Least in 15 Months

September 02, 2011

Sept. 2 (Bloomberg) -- U.S. company bond sales fell 40 percent this week, capping the slowest month of issuance since May 2010, as signs mount the economic recovery is faltering.

Offerings of $3.98 billion declined from $6.65 billion in the five days ended Aug. 26, marking the slowest week this year, according to data compiled by Bloomberg. August sales of $51.4 billion were the least for a month since May 2010 as speculative-grade borrowers were largely shut out of markets.

Relative yields on U.S. corporate debt jumped by the most since October 2008 as Standard & Poor’s cut the nation’s credit rating to AA+ from AAA, consumer confidence slumped to the lowest level in more than two years and economists cut growth forecasts. Markets remained open for companies with some of the highest credit grades, including Warren Buffett’s Berkshire Hathaway Inc. and soft-drink maker PepsiCo Inc., while high- yield, high-risk borrowers like window and door-maker Jeld-Wen Inc. delayed plans to sell bonds, Bloomberg data show.

“S&P’s downgrade of the U.S. sent investors on a flight to quality, foregoing additional yields in riskier ventures to protect against fears of a potential double-dip recession,” Jody Lurie, a credit analyst at Janney Montgomery Scott LLC in Philadelphia, wrote in a Sept. 1 note. Bond sales may revive “when either spreads calm down or the quarter ends, whichever comes first,” she said in an e-mail.

Spreads Widen

Spreads on all corporate bonds expanded 77 basis points to 331 in August, the biggest jump since the 209 basis point increase to 795 in October 2008, according to Bank of America Merrill Lynch index data. Relative yields narrowed 2 basis points to 329 basis points yesterday.

Overall yields on corporate bonds rose to 4.80 percent from 4.50 percent during August and fell six basis points yesterday to 4.74 percent, the index data show.

America Movil SAB, the wireless carrier controlled by Mexican billionaire Carlos Slim, dominated issuance this week with a $2.75 billion dollar bond sale on Aug. 31, its first international offering in 14 months, Bloomberg data show.

PepsiCo Inc., the world’s biggest snack-food maker, sold $1.25 billion of debt on Aug. 22, Bloomberg data show. The Purchase, New York-based company is rated Aa3 by Moody’s Investors Service and A by S&P. Omaha, Nebraska-based Berkshire, graded Aa2 by Moody’s and AA+ by S&P, issued $2 billion of bonds on Aug. 10, Bloomberg data show.

Sales of high-yield, high-risk, or junk, debt tumbled to $930 million, the least since December 2008, the data show. The securities, rated below Baa3 by Moody’s and lower than BBB- by S&P, lost 4 percent in August, the worst performance since November 2008, Bank of America Merrill Lynch index data show.

Jeld-Wen is waiting to sell bonds due to “soft” markets, according to Teri Cline, a spokeswoman at the Klamath Falls, Oregon-based company.

S&P assigned a preliminary issue-level rating of CCC+ on the company, according to an Aug. 3 note.

“We’re just delaying it for a short period of time until we think it is more beneficial,” she said in a voice mail.

--With assistance from Veronica Navarro Espinosa and Drew Benson in New York.

Editors: John Parry

To contact the reporters on this story: Sapna Maheshwari in New York at sapnam@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net


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