(08 January 2021 – Global) Bank of America (BofA) analysts forecast global corporate debt issuance to crater in 2021 following a record borrowing splurge in 2020 underpinning many companies survival throughout the COVID-19 pandemic.
Bankers, analysts and investors expect issuance to slow next year as companies focus on pulling earnings back to pre-crisis levels and reducing the amount of existing debt on their balance sheets. Global bond issuance surged by 25 percent to US$5.35 trillion year-on-year according to the latest Refinitiv data. The total exceeded the annual record only set last year of US$4.35 trillion.
BofA analysts predict net new issuance of US investment-grade bonds will slide by 76 percent. A fall of that magnitude would bring the total to US$63 billion in 2021, the lowest amount since the group began tracking data in 2002. The flood of issuance occurred in 2020 on the back of unprecedented dovish monetary policy by central banks, racing to underpin volatile financial markets in response to a crash in asset prices in Q1 2020. Strong investor demand drove borrowing costs lower and pushed prices higher. T
S&P Global expects global issuance to decrease by three percent this year on the back of uncertainty surrounding the timeline of COVID-19 vaccine rollouts, post-Brexit uncertainty and a potential renewal of US-China trade tensions. The recent rollout of the Pfizer/BioNTech vaccine in the United Kingdom (UK) has given businesses hope for a return to relative normality in 2021. The improving economic outlook may encourage more corporates to expand by launching acquisitions this year, funded through selling cheap debt.
“Acquisition financing dialogue is more active today than at any point this year. Some corporates are feeling more confident as there's more clarity on what the outlook could look like” said BNP Paribas Co-Head of European Debt Markets, Mark Lynagh.
“The big flurry of corporations looking to put cash on the balance sheet in March, April and May was striking. Clearly the narrative going into next year is that supply will be down” stated Wells Fargo Global Head of High Grade Debt Capital Markets, John Hines.
In Q2 2020 Bank of America issued a US$1 billion corporate social bond for COVID-19 relief efforts, becoming the first US bank to do so.
“The proceeds from this offering will help deliver critical resources for the companies involved in the testing, diagnostic, treatment and prevention of this insidious virus, while providing investors an opportunity to join us in this all-important effort” BofA Vice Chairman Anne Finucane said in a statement.