Fresenius SE & Co., the German medical equipment maker, joined facilities service provider La Financiere Atalian SA in selling Europe’s first junk bonds this year as corporate bond issuance reaches the highest in a month.
Fresenius and Atalian’s deals are the first speculative- grade offerings since the start of December and follow last year’s record junk-bond issuance. Deutsche Telekom AG (DTE) and France’s Socram Banque led today’s investment-grade sales, taking this week’s total to at least 14 billion euros ($19 billion), according to data compiled by Bloomberg.
Yields on junk bonds have plunged to a record-low 5.3 percent from 12 percent a year earlier as investors sought a riskier antidote to plummeting rates on safer securities, according to Bank of America Merrill Lynch data. Borrowers sold 77 billion euros of junk-rated debt last year, data compiled by Bloomberg show.
“This year should be busy in terms of new issuers being coaxed into the high-yield bond market,” said Stuart Stanley, a fund manager at Invesco Asset Management Ltd. in London, who oversees $3 billion of high-yield bonds. “I’d imagine we’d surpass last year’s levels.”
Fresenius is raising 500 million euros from notes due July 2020 that will yield 3 to 3.25 percent, according to a person with knowledge of the sale who asked not to be identified because they’re not authorized to speak about it. The Bad Homburg, Germany-based company is rated Ba1 by Moody’s Investors Service and BB+ at Standard & Poor’s and Fitch Ratings.
Paris-based Atalian is selling 235 million euros of seven- year bonds yielding 7.25 to 7.5 percent, a person with knowledge of that sale said. The notes, which can be repaid after four years, are ranked B+ by S&P.
Speculative-grade, or junk, debt is rated below Baa3 by Moody’s and BBB- by Fitch and S&P.
Deutsche Telekom, Germany’s largest phone company, is selling senior unsecured bonds due in eight and 15 years, a person with knowledge of the deal said.
The Bonn-based company’s 4.5 percent bonds due 2030 fell 0.4 percent, pushing the yield relative to the benchmark swap rate up three basis points to 136 basis points, Bloomberg data show. That compares with a spread of 124 basis points on average for investment-grade company bonds, Bank of America Merrill Lynch’s Euro Corporate Index of securities with an average maturity of five years shows.
In credit derivatives markets, the Markit iTraxx Crossover Index of credit-default swaps linked to 50 companies with mostly high-yield credit ratings was little changed 424 basis points. The Markit iTraxx Europe Index of 125 companies with investment- grade ratings was also unchanged at 103.
A basis point on a credit-default swap protecting 10 million euros of debt from default for five years is equivalent to 1,000 euros a year. Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.
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