Bad things come to those who wait
Investment grade companies have defied logic by leaving it until now to refinance
Some high grade European companies are still looking to refinance debt in the bond market this year. It is baffling that they have left it this long.
Europe’s corporate bond market is in a difficult place. Volatility can slam it shut one day, only for it to reopen the next with a deal that many might imagine would be a struggle. APA Infrastructure’s debut hybrid this week proved just such an example. Its €500m 7.125% 60 year non-call 5.25 year deal was almost 10 times oversubscribed.
APA is an outlier. A debutant paying a high yield is the kind of thing to catch investor attention. Sandoz hopes to repeat the trick in the senior market next week, no doubt leaning on its Novartis association to drive demand.
But zoom out from the day-to-day and funding conditions have worsened throughout the year. With a few exceptions, new issue concessions have inched upwards from around 15bp on corporate benchmark deals in euros before the summer to around 20bp-25bp in the autumn.
For a handful of borrowers to have held back all this time from refinancing, only to choose to pull the trigger now at the end of a choppy, horrid year is wild.
Refinancing is meant to be as close to humdrum as possible — no alarms and no surprises. But this is a market that has provided both in ample amounts.
Companies had ample opportunity to lock in long term financing at ultra low yields during the years of the European Central Bank’s bond buying. The writing was on the wall for the end of that programme as far back as mid-2021, when inflation started to boil over.
The main refinancing wall comes next year. Take your pick of reasons why markets will not improve — inflation, persistently high rates, recession, war, and so on.
Any issuer that has left it this late to refinance debt when they could have positioned for far better terms just two years ago has handed an awful lot of pricing power to investors and is at their mercy.