Pre-funding is the gift that will keep on giving for corporates

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incorporated in England and Wales (company number 15236213),

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Pre-funding is the gift that will keep on giving for corporates

Business People Racing on Track. Image shot 2009. Exact date unknown.

Even those that have not issued early should benefit from the quick movers

European companies are hitting the bond market to raise billions of euros earlier than they planned, to avoid what could be a market meltdown early next year. Even issuers that can’t get their ducks in a row quickly enough will benefit greatly.

Italian gas pipeline company Snam last week became the latest company to print debt in the fourth quarter that it had originally planned to issue next year.

It is far from alone. Multiple deals across Europe over the last six weeks have come from companies doing the same.

This seems to be shown in bond data. In the last three months of 2023, there were 69 high grade European corporate euro benchmarks, totalling €44bn. So far in the final quarter of 2024, there have been 73, totalling €48.5bn, according to GlobalCapital’s Primary Market Monitor.

Good now, bad later

Companies have come to the market now to take advantage of stellar conditions, as investors remain awash with cash after 10 months of almost constant weekly inflows. None of the feared volatility spikes at the end of this year — notably the US election at the start of this month — have slowed the market down. Times are good for those that can print debt now.

But what about those that cannot, like companies with tighter constraints about pre-funding? Some are prohibited by the cost of carry from sitting on more debt than they need. Are they destined to face a terrible market once President-elect Donald Trump comes to power in the US and, as he said on his Truth Social platform overnight on Tuesday, imposes tariffs on China, Canada and Mexico from day one?

Even these companies will probably benefit notably from the pre-funding spree that has been under way this quarter.

With more done in the last three months of 2024, there will be less for companies to issue in the first three of 2025. This might sound like a moot point, when January 2024 alone had €37bn of euro benchmarks sold, but for some corners of the market it could prove a boon.

The hybrid market, for example, has been a bit of a slog in recent weeks. There have been some standout trades, such as from TotalEnergies and to a lesser degree Abertis Infraestructuras and Heimstaden Bostad, but the other deals have been far less impressive, often rousing less demand than senior deals on the same day.

Niche deal deluge

But the five hybrid issuers in the past month can be compared with just one in the same period of 2023. Hybrid capital is not a large market, with only €18.1bn of euro benchmark issuance so far in 2024, making up just over 5% of the €337bn of euro benchmark IG corporate bond issuance, according to Primary Market Monitor.

This means any hybrids brought into this year that were meant to come next year should have an outsized positive effect on hybrid demand in early 2025, for companies that come to market then.

Pre-funding works great for those quick enough to take advantage, but it will probably work out pretty well for the stragglers too.

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