CreditSights: The Week In Credit
It was all about GM last week (despite another Federal Reserve easing) as the auto company showered supply on the market in the largest financing deal ever undertaken by a U.S. company. The multi-maturity, multi-currency, mutli-structure deal was a singular hit as investors welcomed the return of the auto jumbo deal with open arms. For all its size, demand was robust, pricing was tightened and spreads came in on the break. And, despite levels that were well behind where equivalent maturity secondary market paper was trading when the issue was announced, the deal did not create an overhang that softened aggregate spreads. They, in fact, managed to tighten slightly during the week-long marketing and launch process. If anyone had doubts about the depth of appetite for yieldy corporate paper, the success of GM's deal should have removed them. Away from GM, there was $4 billion of highly-rated supra/sovereign issuance and nearly $5 billion of low speculative-grade deals. All in all, over $20 billion of supply hit the sector this week.
Which raises the question: is this the start of a wave of super-sized bond deals that will follow the "GM solution' to its pension-funding problem? We certainly understand the temptation for CFO's to monetize the sizeable deficits in many pension plans at rates that could hardly get more appealing. That said however, we believe there is a fairly narrow list of candidates who actually could follow in GM's footsteps and tap the markets in such size to address this need. In a nutshell, most of the companies whose pension shortfall is large enough to warrant doing this are further down the rating spectrum and simply would not get the reception from investors that GM did. Hence we are not altering our current full-year 2003 forecast for investment grade corporate debt issuance, which remains at $430 billion.
Analysis by CreditSights, Inc., an independent online credit research platform. Call (212) 340-3888 or visit www.CreditSights.com for more information.