November 10, 2016 / 6:12 PM / 2 years ago

Junk-bond issuers cautious as pace picks up

NEW YORK, Nov 10 (IFR) - Bankers are advising junk-bond issuers to be prudent in the aftermath of Donald Trump’s US electoral victory, warning that conditions are likely to remain volatile for some time to come.

Treasury yields widened sharply after the vote, making conditions less attractive for better quality junk borrowers, whose curve more closely mirrors that of Treasuries.

At least two junk-rated companies planning to announce refinancing deals this week were advised to hold off for the moment, bankers told IFR.

And expectations for more than US$10bn of new high-yield supply next week may need to be revised down if more opportunistic issuers decide to wait.

“There could be a pause for higher-quality issuers coming to the market,” a senior leveraged finance banker said.

“They are probably going to wait if they lost 20bp and they have (Double B) ratings.”

Even for those companies that need to come to market to fund planned acquisitions, underwriters are recommending a prudent approach when they pull the trigger.

“We are taking a cautious tone,” a second banker said. “Maybe we won’t accelerate or tighten (deals) as quickly out of respect for the volatility.”

Still, the primary market seems to be ticking along.

Canadian satellite company Telesat on Wednesday priced a US$500m eight-year non-call three bond issue that had been announced before the elections at 8.875% - the midpoint of 8.75%-9% price talk.

While the size was cut by US$250m, investors said that had more to do with challenges in the satellite industry than with the election outcome.

The notes jumped by over two points on Thursday.

Meanwhile Envision Healthcare is expected to kick off a roadshow next week for a US$750m unsecured bond that will help finance its merger with surgery center operator AmSurg.

Barring fresh outflows from the asset class, many on the buyside say they are still receptive to new issues.

“We are not going to sit here and say that because of the result (of the elections) new issues are off-limits for us,” said Tom Stolberg, a portfolio manager at Loomis Sayles.

“We bought new issues in February, when the world was a lot more miserable than it is now. Sometimes it can be an opportunity.” (Reporting by Davide Scigliuzzo; Editing by Marc Carnegie)

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