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Bond OutFlows restart

March 30, 2011 – Comments (0) | RELATED TICKERS: TECL , SPY , QQQ

Junk Bond Sales Slow as Investors Withdraw Cash: New Debt Alert By Tim Catts - Mar 21, 2011 5:36 AM ET

Issuance of high-yield, high-risk corporate bonds is falling as investors in funds that hold the debt withdrew money for first time in more than three months.

Junk-bond funds had outflows of $802 million in the week ended March 16, the first period of withdrawals since Dec. 1 and the largest since June 2, said Cameron Brandt, the director of research at Cambridge, Massachusetts-based EPFR Global.

Companies sold $2.45 billion of speculative-grade bonds last week, compared with $5.64 billion during the period ended March 11, according to data compiled by Bloomberg. Investors are concerned the economic recovery may falter after Japan struggled to contain radiation leaks at a nuclear plant damaged in last week’s earthquake and tsunami and unrest roiled the Middle East.

“There was a change in mentality as people shift away from riskier assets,” said Adrian Miller, a fixed-income strategist at Miller Tabak Roberts Securities LLC in New York. “You got to a point where it looked like the world was going to end and these reactors were going to blow up and the Libya situation was intensifying.”

Japan’s 9.0-magnitude earthquake and the tsunami that followed damaged the Fukushima Dai-Ichi nuclear plant, causing a crisis that Prime Minister Naoto Kan called “very grave” on March 19. Deposits into funds investing in junk bonds slowed while Libyan leader Muammar Qaddafi’s forces struck back against rebels, prompting two days of missile and aircraft attacks by the U.S., the U.K. and France.

The extra yield investors demand to own junk bonds widened 14 basis points last week to 502 basis points, after narrowing 8 basis points on March 18, according to the Bank of America Merrill Lynch High Yield Master II index. Absolute yields climbed 3 basis points to 7.45 percent for the week, the index data show.

High-yield, or junk, bonds are ranked below Baa3 by Moody’s Investors Service and less than BBB- by Standard & Poor’s. A basis point is 0.01 percentage point.

Boart Longyear Group sold $300 million of 10-year notes on March 18 in the day’s only U.S. corporate bond offering. Moody’s assigned the debt a grade of Ba2 while S&P rated it BB-, one step lower.

Companies issued $11.2 billion of debt in the U.S. last week, compared with $35.9 billion during the period ended March 11, the day the earthquake and tsunami struck Japan, according to data compiled by Bloomberg.

Spreads on investment-grade debt narrowed 2 basis points on March 18 to 155 basis points, 4 basis points wider for the week, while yields rose 0.7 basis point for the day and narrowed 6 basis points for the week to 3.95 percent, according to the Bank of America Merrill Lynch U.S. Corporate Master Index.

The following is a description of at least $450 million of pending sales of dollar-denominated bonds in the U.S.

ADS TACTICAL, a provider of equipment to the U.S. Department of Defense, plans to sell $275 million of seven-year senior secured notes that will be noncallable for four years, according to a person familiar with the transaction. Proceeds will be used to refinance existing indebtedness and to fund an equity distribution to shareholders, said the person, who declined to be identified because terms aren’t set. The issue is a debut offering, according to data compiled by Bloomberg.

YANLORD LAND GROUP LTD., a Singapore-based developer of properties in China, hired HSBC Holdings Plc, JPMorgan Chase & Co. and Royal Bank of Scotland Group Plc for a dollar bond sale, according to a Singapore stock exchange statement.

SI ORGANIZATION INC., the former Lockheed Martin Corp. unit once known as Enterprise Integration Group, may sell $175 million of senior subordinated notes, according to S&P. The proceeds may be used with $340 million of bank debt and $370 million of new common stock to pay for its acquisition by Veritas Capital, S&P said.

KEYCORP, Ohio’s second-biggest bank, plans to sell debt to help repay a U.S. bailout after a Federal Reserve review of the company’s capital strength, the Cleveland-based company said in a statement distributed by PR Newswire. The lender also plans to sell $625 million of stock, it said.

SUNTRUST BANKS INC., the Atlanta-based bank, plans to sell $1 billion of debt to help repay $4.85 billion of US bailout funds, it said in a statement distributed by PR Newswire. SunTrust also plans to sell $1 billion of stock, it said in the statement.

SUNAC CHINA HOLDINGS LTD., a developer based in Tianjin, postponed a series of investor credit meetings after it hired Goldman Sachs Group Inc., Deutsche Bank AG and Standard Chartered Plc to help it with a sale of dollar bonds, according to a person familiar with the offering. The five-year notes may be rated B+ by Standard & Poor’s, said the person, who declined to be identified because terms aren’t set.

DELONG HOLDINGS LTD. (DLNG), a Singapore-listed Chinese steelmaker, may attempt to sell dollar bonds in the “second half” if it gets lower interest rates, Chairman Ding Liguo said in an interview in Beijing while attending the National People’s Congress. The company canceled a planned sale of the debt on Feb. 15 after meeting investors. “We aim to cut the bond’s coupon rate to 10 percent from 14 percent,” he said. The sale is “subject to our need for capital in a planned acquisition,” he said, without saying how much the company wanted to raise.

ASTON RESOURCES LTD. (AZT), the Australian mineral exploration company, is considering selling bonds in the U.S. to help raise funds to develop its Maules Creek coal project in New South Wales, Chief Executive Officer Todd Hannigan said at a business luncheon in Sydney March 3. Aston may raise $300 million to $500 million, he said.

MONGOLIA is planning its first sale of sovereign bonds, seeking about $500 million, to establish a benchmark that would help companies from the resource-rich nation located between China and Russia raise funds from credit markets. The sale will “probably” take place in 2011, pending parliament’s approval, Vice Minister of Finance Ganhuyag Chuluun Hutagt said March 3 in an interview in Ulan Bator.

BAA LTD., the owner of London’s Heathrow airport, said it plans to sell bonds in dollars for the first time this year as it seeks to fund the renovation of Europe’s biggest hub. The company is owned by Spain’s Ferrovial SA.

THE PHILLIPINES plans to sell dollar bonds this year as part of its 2011 borrowing program, Finance Secretary Cesar Purisima said Feb. 9 in Manila. The country is sticking to a plan to narrow the budget deficit to 3.2 percent of gross domestic product, Purisima said in an interview.

AVG TECHNOLOGIES, the Czech maker of internet security software, plans to sell bonds to U.S. investors to raise money for dividends and acquisitions, said Siobhan MacDermott, AVG’s Prague-based investor relations officer, in an interview Feb. 10. The producer of a free antivirus program that competes with McAfee Inc. and Symantec Corp. is seeking to raise $300 million of debt, MacDermott said.

TATA STEEL LTD., India’s biggest producer of the alloy, plans to sell $500 million of debt by the middle of this year, CNBC-TV18 news channel reported, without saying where it got the information.

RODOPA EXPORTACAO DE ALIMENTOS & LOGISTICA LTDA, a Brazilian beef producer, may sell as much as $100 million in five-year bonds in the second half of this year or early next year, Chief Executive Officer Sergio Longo said Feb. 4 in an interview at the company’s headquarters in Sao Paulo.

(Added Feb. 8. See http://www.tatuibi.com.br/)

GAIL LTD., a government-run gas distributor in India, may sell $200 million of dollar-denominated bonds, Finance Director Raj Kumar Goel said in New Delhi.

PT SULFINDO ADIUSAHA, an Indonesian company which makes chlorine and chemicals, hired Barclays Plc and Standard Chartered Plc to help it sell five-year, fixed-rate dollar bonds, according to a person familiar with the matter.

INKIA ENERGY, a unit of Israel Corp., may sell bonds in the U.S. to finance expansion of its electricity generation business, according to a spokesman for the holding company. The company plans to raise $250 million from the sale and is in discussions with several foreign banks, Calcalist reported Jan. 9, without saying where it obtained the information.

AMERICAN INTERNATIONAL GROUP, the insurer rescued by the U.S. government, is contemplating a new debt sale, a person familiar with the matter said. The firm hasn’t considered a timeline for when it might sell more bonds, said the person, who declined to be identified because the terms aren’t set. AIG sold $2 billion of bonds Dec. 1 in its first offering since it was rescued by the U.S. government in 2008.

PTT EXPLORATION & PRODUCTION PCL, Thailand’s only listed oil and gas explorer, plans to sell bonds denominated in dollars, according to a person familiar with the transaction. PTT Exploration hired Barclays Plc to manage the sale, said the person, who declined to be identified because terms aren’t set. Barclays is arranging a U.S. dollar-denominated medium-term note program for the company, the person said.

AL BARAKA BANK EGYPT ESC, a unit of Bahrain-based Albaraka Banking Group (BARKA), may sell dollar-denominated Islamic bonds in the second half of 2011, the bank’s chairman said Sept. 29. The bank hasn’t decided on the size of the bond, he said.

To contact the reporter on this story: Tim Catts in New York at tcatts1@bloomberg.net.

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net.