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Global corporate loan sales soared to a record 8tn this year as companies took advantage of red-hot demand from investors to accelerate their lending plans.
Corporate Bond Issuance and Subsidized Loans Rising by more than a third to $7.93tn by 2023, according to LSEG data, big companies from AbbVie to Home Depot used borrowing costs to reduce government debt to its lowest level in decades.
The increase in activity exceeded the previous peak in 2021 as strong investor interest cut costs for corporate borrowers before the Federal Reserve and other central banks began cutting interest rates to their highest levels in decades.
“Markets are firing on all cylinders and then some,” said John McAuley, head of North American debt capital markets at Citigroup.
Bankers said that those cheap costs of money – at least relative to safe government bonds – first convinced the companies Pull forward They came out to avoid any market turmoil around the US election. But as spreads tightened further in the wake of Trump’s landslide victory, some decided to lock in next year’s borrowing needs as well.
“At first it was, ‘Let’s risk our funding for the year,'” said Tammy Surbey, head of fixed income capital markets at Morgan Stanley. “Then he said, ‘Actually, the conditions look very attractive, why don’t we push forward to 2025?’
Pharma giant AbbVie raised $15 billion from an investment-grade bond sale in February to help fund acquisitions of ImmunoGen and Cervel Therapeutics by 2024, while other big issuers include Cisco Systems, pharma group Bristol-Myers Squires, embattled aerospace giant Boeing and retailer Home Depot. .
U.S. investment-grade bonds fell to 0.77 percent after the election, the tightest gap since the late 1990s, according to Ice BofA data. After that, it was slightly expanded. The spread on risky high-yield corporate bonds has widened further since mid-November, but is not far from 17-year lows.
Despite the narrow expansion, overall borrowing costs remained high at the level of Treasury products, with investment-grade corporate debt at 5.4 percent, compared with 2.4 percent three years ago, BofA data showed.
It has attracted relatively high yields on corporate debt, with investors pouring nearly $170 billion into global corporate bond funds by 2024, according to EPFR data.
Dan Mead, head of Bank of America’s investment-grade syndicate, said 2020 was the bank’s busiest year for high-end dollar loans as the Covid stimulus fueled consumer frustration.
“We estimate what the supply should be every month. . . And every month the actual supply exceeded (them),” he added.
In the year Even after the 2024 bonanza, many banks say they expect a steady flow of loans next year as companies refinance the cheap debt they got during the pandemic.
Mark Byneres, co-head of global investment-grade finance at JPMorgan, expects “activity will be steady” next year. But he highlighted a “wild card” for “more significant, large-scale, debt-backed (mergers and acquisitions)”.
However, some bankers have warned that the corporate lending frenzy could slow down if it spreads meaningfully from current levels.
“The market right now is not pricing in any harm,” said Maureen O’Connor, head of senior debt syndicates at Wells Fargo. “With the types of distributions that are covered to perfection, you’re looking at a unique risk.”
