Tags: Trump | Uncertainty | Slows | Investment | Grade | Debt | Issuance

UBS: Trump Uncertainty Slows Investment-Grade Debt Issuance

Image: UBS: Trump Uncertainty Slows Investment-Grade Debt Issuance
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Wednesday, 19 Apr 2017 04:09 PM

Investment grade corporate bond issuance is suffering at the hands of the Trump administration, as businesses hold off on debt-fueled mergers and acquisitions in the face of policy uncertainty, according to research by UBS Group AG.

Though gross issuance is up, it’s largely been fueled by businesses refinancing their debt, UBS strategists Stephen Caprio and Matthew Mish wrote in a note Tuesday. Net corporate issuance excluding refinancings has fallen 26 percent this year, despite a robust pipeline overseas. 

“The drop in U.S. M&A activity looks to be a by-product of uncertainty on tax reform and antitrust policy, rather than U.S. CFOs becoming more conservative with financing decisions,” they wrote.

The consumer staples sector is leading this year’s drop with just $4.3 billion of debt issued, compared to $52 billion a year earlier, when Anheuser-Busch InBev NV bought fellow beer-maker SABMiller Plc. The technology sector has the second weakest performance, with issuance falling $10 billion short from a year ago as companies hold off on borrowing for general purpose proceeds, according to Caprio and Mish.

Should clarity from Washington come in the form of “market friendly policy” the bond investors will likely see a “surge” of new issues, Caprio said in a phone interview. But as questions loom about repatriation of overseas cash and health care reform, businesses have taken to refinancing their debt ahead of anticipated future interest rate hikes by the Federal Reserve, Caprio said.

“If IG issuance is dropping due to policy uncertainty, this could easily boomerang back into weaker growth, falling risky assets, and wider credit spreads,” Caprio and Mish wrote.

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Companies uneasy about M&A outlook aren’t seeking deals; Gross issuance improvement is fueled by debt refinancings.
Trump, Uncertainty, Slows, Investment, Grade, Debt, Issuance
Wednesday, 19 Apr 2017 04:09 PM
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