The completion of two drive-by high-yield offerings late last week could signal the recent speculative-grade issuance drought may be coming to an end. Host Marriott and Allied Waste Industries, each regular high-yield issuers, sold drive-by deals--which tend to be sold by savvy issuers who spot an attractive funding window--signaling borrowers may start to tap the market again, said Marty Fridson, ceo of FridsonVision, an independent research outfit. Weaker spreads to start the year had made funding costs more expensive and dampened new sales, but a recent tightening of spreads is creating a healthier pipeline, he explained.
The possibility is a welcome one for investors who are hungry for new paper in an environment where yield has become highly sought after. "The market could certainly absorb new issuance, but companies just don't want to take out new debt," griped one investor. "There has been a disconnect between investor enthusiasm and issuance" with corporations' reluctance to spend cash, said Chris Garman, head of high-yield strategy at Merrill Lynch.
Other factors are also expected to lead to a pick up in new sales. The annual rite of post-bonus resignations and February school vacations has kept issuance low, researchers said.