Berkshire Hathaway to Join Global Debt Bonanza

04/06/2020

Repsol SA is the latest oil major to head to Europe’s debt market for fresh financing, with other large borrowers piling in as measures of credit stress ease for the first time in four days.

Eight issuers including Sanofi and LafargeHolcim Ltd are marketing new bonds on Monday, with Repsolfollowing BP Plc, Royal Dutch Shell Plc and OMV AG in to the market. The strong start to a holiday-shortened week for sales comes as a gauge of European credit risk fell after Germany saw the lowest number of new coronavirus cases in six days and U.S. President Donald Trump said he sees signs the pandemic is beginning tolevel off in the U.S.

“We expect primary to remain busy this week despite what would usually be the calm Easter holiday period,” Commerzbank AG strategists wrote in a note to clients. “Risks remain elevated, and unlike in other market phases the surge in issuance merely reflects issuers’ desperation to collect liquidity during an issuance window of uncertain length which could also close again quite abruptly.”

Steady sales

Repsol International Finance BV is offering two euro notes on Monday, including a 10-year tranche marketed at about 295 basis points above midswaps, according to a person with knowledge of the sale, who asked not to be identified citing internal company policy. That’s more than the 190 and 280 basis-point spreads better-rated peers Shell andBP paid to sell 12-year euro notes on April 2, according to data compiled by Bloomberg.

Paris-based Sanofi istapping two existing euro-denominated notes, while emerging-market sovereignLatvia is raising euro-denominated three-year notes in its second syndicated debt sale in a fortnight.

In Asia, Warren Buffett’sBerkshire Hathaway Inc. is set to join the record bonanza of corporate debt sales with a multi-tranche sale of yen-denominated bonds maturing in as long as 40 years later this week. The conglomerate is offering 10-year notes with a spread of 100-110 basis points, about double the 50 basis points it paid to sell similar-maturity notes in September.

The deals come as corporate credit risk begins to nudge lower after ballooning during March. Spreads on euro-denominated high-grade company bonds have also ticked lower after surging 124 basis points last month, according to a Bloomberg Barclays index. The Markit iTraxx Asia ex-Japan index of credit-default swaps declined about 3 basis points Monday, according to traders.

Paying up

Borrowers have been undeterred by a spike in financing costs sparked by the coronavirus pandemic, withrisks still abounding as U.K. Prime Minister Boris Johnson was hospitalized after failing to recover from the virus. The number of confirmed global cases is nearing 1.3 million, with the death toll topping 69,000, according to Johns Hopkins data.

Many firms are building cash buffers to tide them over as the pandemic makes global recession certain, and others are expanding reserves for acquisitions. Worldwide debt sales blasted past a record $200 billion last week, with Oracle Corp. pricing a $20b Debt Offering in 6 Parts” class=”terminal-news-story” target=”_blank”>$20 billion offering and T-Mobile US Inc. raising $19b Debt Offering in 5 Parts” class=”terminal-news-story” target=”_blank”>$19 billion to help finance the acquisition of Sprint Corp.

“Issuers continue to have to pay up for the privilege of bringing new deals,” said Tomas Hirst, a strategist at CreditSights Inc.

Europe

Corporates are leading the eight deals being marketed on Monday, with Repsol, Sanofi, LafargeHolcim and Naturgy Finance all offering high-grade euro notes
The deals come as the virus-headline spotlight shifts to the U.K. after PM Johnson was taken to hospital for tests after struggling to recover from the virus
Blackrock strategists say theoutlook for credit has improved due to the unprecedented central bank action to tackle coronavirus, and it sees room for outperformance in corporate debt
Peugeot maker PSA is thelatest auto-sector name to raise financing, as it signed a 3 billion-euro ($3.2 billion) 12-month deal, adding to an undrawn credit line of the same size
Engine maker Rolls-Royce got a new 1.5 billion-pound ($1.8 billion) credit line, after drawing down 2.5 billion pounds of revolving facilities last month

Asia

Berkshire Hathaway’s multi-tranche yen bond is its first sale in the region since September, whenit raised 430 billion yen (about $4 billion) across six tranches in the biggest yen offering by a non-Japanese borrower
Berkshire’s sale may be welcome news for institutional investors in Japan desperate for yield and safer credits. The country’s Government Pension Investment Fund said last week it will allocate 25% of its assets into overseas debt while cutting holdings of Japanese bonds.Read more about that here
Republic of Indonesia is offering a three-part note sale and will use the proceeds to part-fund its Covid-19 relief and recovery efforts
The Markit iTraxx Asia ex-Japan index of credit-default swaps declined about 3 basis points Monday. Meanwhile Asian investment-grade dollar bond spreads were little changed after widening for a seventh straight week through Friday, according to a Bloomberg Barclays index
Trading volumes were light and liquidity in the market appears thin

U.S.

Friday was fairly quiet following a grimpayrolls report
FedEx, MetLife and Dell were set to push last week’s record high-gradeissuance even higher
Citigroup made more than$100 million trading a huge swath of AAA CLOs as market turmoil prompted asset managers in need of liquidity to unload securities at steep discounts
For more,click here for the Credit Daybook Americas

— With assistance by Alice Gledhill, Jacqueline Poh, and Lyubov Pronina

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