Junk Sales Set to Break January Record: U.S. Credit Week Ahead

(Bloomberg) -- The high-yield bond market is wrapping up what’s likely to be the busiest January on record next week as investors continue to pour cash into risky assets as they hunt for higher returns.

Sales stand just about $1.2 billion below the current January peak of $37 billion, which was set in the first month of 2020. Yields on CCC debt, the riskiest of junk bonds, hit an all-time low Thursday as investors have moved down in credit quality in search for returns. More than $13 billion of high-yield notes priced this week with debt rated in the CCC tier representing about a third of the volume.

More energy companies are expected to tap the market to refinance or repay existing debt, with NGL Energy Partners expected to price their $2.05 billion five-year note offering Tuesday.

U.S. leveraged loans are also on a hot streak, with private equity firms rushing to cut pricing on debt that funded buyouts and dividends just a few months ago. At least seven lender meetings are on deck, most of which are to finance acquisitions, including a $1.26 billion term loan for American Securities’ buyout of Foundation Building and $1.23 billion deal for an Ares Management Corp. consortium buyout of TricorBraun Inc.

Meanwhile, commitments are due for at least a dozen deals next week, including Endure Digital’s LBO-backing term loan. Gannett Co. is also hitting the market with a $1.05 billion five-year loan to repay more expensive debt that was provided by Apollo Global Management in 2019 to finance New Media Investment Group Inc.’s acquisition of the newspaper publisher.

More launches may pop up next week for repricing and more fund inflows are expected, with the loan price index inching closer to par.

In the distressed space, the bankrupt parent of New York and Boston Sports Clubs has a hearing scheduled on Monday, as the struggling fitness chain seeks to exit Chapter 11 under new ownership.

Bank Sales

Investors can expect $20 billion to $25 billion of investment-grade issuance next week, in line with this week, according to an informal poll of primary dealers. Issuers from the financial sector, including Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley, dominated the new issue market and more banks may bring new deals in the following days.

“We continue to expect that banks could take advantage of tight spreads, and issue a high portion of their FY funding plans following first quarter earnings,” JPMorgan Chase & Co. credit analysts led by Eric Beinstein wrote in a note on Friday.

January high-grade supply has now reached $100.3 billion, approaching the $115 billion projected for the month. Sales may exceed expectations as more companies exiting voluntary blackout periods next week may look to capitalize on low borrowing costs. Borrowers are still paying flat to minimal new issue concessions, though investors’ bids for new issues may be deteriorating.

Corporate earnings kick off in earnest next week with industrial heavyweights including Apple Inc., Verizon Communications Inc., Boeing Co. and General Electric Co. becoming candidates to sell bonds.

U.S. corporate investment-grade funds reported their fourth-biggest inflow ever with $8.3 billion added in the week ended Jan. 20, even as rising Treasury yields keep returns muted.