While debt is cheap, debt issuance looks set only to continue to rise through 2021, says Managing Director, Alan Booth.
Debt finance activity has been on the increase in recent months as companies seek to mitigate the effects of the coronavirus lockdown. As fund managers begin to emerge from the initial shock of the crisis, focus is shifting to opportunities in distressed debt and special situations.
Ordinarily, you would expect to see bond issuance declining in the event of falling GDP, but that really hasn't been the case in the first two quarters of 2020. With the covid-19 restrictions on society and economic closures, there is a sizeable decrease in consumer demand, but an increase in household saving and an increase in corporate debt as the vast majority of people continue to practice social distancing, avoid the high street and work remotely. For companies to survive, they have drawn heavily on revolving credit facilities, drawing down $340 billion across the US and Europe. The US market has diverged slightly from Europe, focusing heavily on long-term bond issuance, whereas in Europe the focus has been heavily on commercial paper.
Ocorian has been involved with two of the largest commercial paper issuers in Europe, so we have seen the level of activity gradually increase. Commercial paper is a relatively cheap funding tool, so in the first two quarters issuance reached ?35 billion in Europe, which is well up on last year, and we expect that to continue as the US continues down the long-term bond issuance route.
Note: This article is part one of a three-part series examining the rise of debt issuance activity. *
Specialists in restructuring
At Ocorian, we are actively looking at ways in which COVID-19 is having an impact on the debt capital markets, in particular debt restructuring and corporate insolvency. Our team of corporate trustee experts have years of market experience in securitisations, complex restructurings, defaults and downgrades. We would welcome further discussion with you on how COVID-19 is affecting your business while we are happy to share our commercial and practical experience.
*Article first featured in Private Equity International on 01/10/20.
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