In the last three months, companies issued $140 billion in the junk bond market in the US, surpassing the record rush for cash in Q2 2020 when groups rushed to fortify their finances to survive the impacts of the COVID-19 pandemic.
Investors taking advantage of low rates to invest in high yield bonds
According to Refinitiv data, even riskier borrowers have taken advantage of the low borrowing fees to finance acquisitions, refinance debts and pay dividends. This is also a sign of the rebound level from last year when high yield bonds were among those assets under pressure because of financial market turbulence.
Diamond Hill Capital Management portfolio manager John McClain said that what is being witnessed is shocking and unexpected. He said that although this is surprising, he doesn’t expect any slowdown any time soon. It is important to note that the three record issuance quarters have been in the last 12 months, and that has helped push the US high yield bond market to $1.5 trillion from $1.2 trillion at the beginning of last year. Interestingly, the large-scale issuance means that companies will owe huge debts that might need refinancing in the future, which will boost issuance volumes.
Investors are clocking junk deals because of low-interest rates that have resulted in them seeking higher returns in riskier markets. This week Royal Caribbean raised $1.5 billion to refinance debt due in two years.
Pilgrim Pride announce $1 billion sustainability bond
Meat and poultry company Pilgrim’s Pride Corp (NASDAQ:PPC) has announced a $1 billion sustainability-linked bond connected to its Sustainability Performance target (SPT) for cutting emissions by 30% in the next decade. The move is part of the company’s efforts to put its cash where its mouth is, as it promises improved practices. Most consumers are choosing brands with sustainability halos, and as result, companies are announcing pledges to cut greenhouse gases and improve animal welfare.
Notably, the interest rate on the new bond will increase by 25 basis points if Pilgrim Pride fails to demonstrate through third-party verification service that it can achieve the sustainability targets. Most importantly, the bond is tied to the company’s Sustainability-Linked Bond Framework, which shows Pilgrim Pride’s plan to minimize carbon emissions as per the Paris Accord.
ReNew Power Restricted Group’s proposed senior notes receive BB-ECP rating
ReNew Power Restricted Group 4’s proposed US dollar senior secured notes expiring 2028 have received a “BB-(EXP)” rating by Fitch Ratings. This outlook looks positive for the renewable energy independent power producers. ReNew RG4 is a restricted group comprising ten subsidiaries of ReNew Power Private Limited. The company currently has an operating capacity of 5.4GW, with 5.4GW capacity under construction.
The proposed notes’ rating reflects the restricted group f operating entities’ credit weaknesses and strengths. ReNew RG4 will benefit from the parent company’s access to funding to refinance its USD bond with full-tenor guarantee support from ReNew Power.