Fitch: Record EMEA Corp Issuance Boosted by US and HY Issuers

EMEA corporate bond issuance is on course to hit a record in 2015, Fitch Ratings says. Companies around the globe are locking-in low yields while US issuers are increasing their presence in the market as the difference between borrowing rates in the US and Europe grows.

Issuance surged to a high in the year through May, growing 12% yoy, as companies took advantage of yields falling to a fresh low in mid-April and issued debt at longer maturities. The ECB's quantitative easing programme has prompted investors to seek higher returns in the corporate bond market, at a time when the share of outstanding European government bonds trading with negative yields hit 37% at its peak.

US corporates are also attracted by the near-record low yields on offer in the European markets. So-called 'reverse-Yankee' issuance more than tripled yoy in 5M15 to EUR43.8bn, with names such as Coca-Cola Co., Mondelez Intl., AT&T Inc., Bristol-Myers Squibb Co. and McDonald's Corp. topping the list. These five household names collectively accounted for EUR19bn of the total.

The pace of US issuance in European currencies (euros, Swiss francs and pound sterling) is faster than that of their main counterparts: corporates in Germany supplied EUR31.7bn in new bonds, while UK issuers were closer to the US volume at EUR38bn.

European high-yield issuance continues to benefit from similar factors to the broader corporate market, with the added advantage that the higher yields on offer provide greater cushion against bouts of volatility deriving from the US-Europe monetary policy divergence. Issuance is on course to achieve yet another consecutive annual record, buoyed by a wave of M&A-related supply and a growing contribution from debut issuers.

High yield bond proceeds earmarked for M&A rose to 32% of new issuance in the year through April, the highest level observed. As a further sign of confidence and low yields, offerings from first-time issuers in EHY more than doubled to EUR16bn despite growing competition from loans.

Booming issuance contrasts with weakening corporate credit profiles. EMEA corporates suffered a deterioration in the credit rating trend in the first quarter of the year. The upgrade-to-downgrade ratio fell to 0.27x, from 0.89x in 2014, driven largely by a raft of downgrades for Russian energy producers. Outlooks and Watches on Fitch-rated corporates remain in net negative territory, indicating a degree of downgrade pressure for the rest of the year.