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Page added on October 16, 2017

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Junk Borrowing Binge Benefits Wall Street Above All

Business

Junk-rated companies are selling loads of debt again.

They’re issuing dollar-denominated bonds at the fastest pace this month since October 2012.

October Surge
This month’s U.S. junk-bond sales are poised to be the fastest for an October since 2012
Source: Bloomberg
Note: Blue bar is monthly volume 2012-2016, MTD 2017. Yellow bar is conservative projection.

This builds on the frenzy in the U.S. leveraged-loan market this year, which is on pace to be the most active ever.

The most obvious interpretation of this borrowing binge is that it fits into the popular narrative of incredibly frothy markets. In that scenario, speculative-grade companies are throwing caution to the wind and packing on leverage at the expense of lenders. Supporting that argument is the reliance of more companies on debt markets to finance leveraged buyouts, locking in historically low rates.

But that narrative is far too simplistic and misses an important point. Junk-rated companies have been able to borrow money cheaply and easily for years, with the exception of a chunk of time in 2014 and 2015 when oil prices took a dive. And interestingly, the total amount of publicly traded speculative-grade debt has actually declined in the U.S. in recent years.

Ticking Lower
The size of the widely syndicated U.S. leveraged-loan market has shrunk in recent years
Source: S&P/LSTA Leveraged Loan index data

New debt sales have failed to offset the amount of securities that are being upgraded or maturing.

Flattening Out

A more accurate view is that the activity in U.S. high-yield debt markets is mostly churn, which may benefit Wall Street most of all. Companies are fortifying their balance sheets to be as resilient as possible in case of an economic downturn or market selloff. Bankers and lawyers are eager to help because their significant fees help pad bank balance sheets.

Indeed, even with a slow start to the year for U.S. junk-bond sales, investment banks have made $10.5 billion in revenue from selling leveraged finance deals so far this year, up from $6.9 billion in 2016; that’s the highest level since 2013, according to Dealogic data cited this week by the Financial Times. That doesn’t factor in the hefty fees paid to lawyers who scour documents and get paid hundreds of dollars an hour.

A lot of this activity stems from the leveraged-loan market, where companies are renegotiating deals at a record pace to lock in lower rates and looser terms. A record proportion of transactions have removed provisions that allow investors to limit the amount of new debt companies take on in the future. Private equity sponsors have been singularly aggressive in stripping away some of these protections, giving them more flexibility to deal with future issues.

This borrowing spree is certainly problematic for many debt investors. They’re getting less money and control over risky companies. But options are limited because the pool of higher-yielding debt is shrinking and many are required to invest money clients give them.

For most of the companies, the borrowings aren’t providing obvious longer-term strength except for perhaps more time to improve their business. Adjusted leverage for both investment-grade and speculative-grade issuers is near decade highs, according to S&P Global data. So companies have been boosting debt faster than they have bolstered revenues.

The biggest beneficiary may be the bankers and lawyers who are earning billions of dollars to negotiate and renegotiate deals, creating a distracting churn amid a relatively stagnant backdrop of slow growth and global stimulus.

bloomberg



33 Comments on "Junk Borrowing Binge Benefits Wall Street Above All"

  1. Go Speed Racer on Mon, 16th Oct 2017 11:03 pm 

    Looks like the Bush Jr crooks are back,
    selling junk bonds and Amway futures.

    Soon the junk bond crooks, will crash the
    whole economy all over again. Finish off
    the last remnants of the middle class.

    Go long on Money Laundering stocks,
    but take a short position on Embezzlement
    Funds.

    Buy Put Options on Racketeering Futures.

  2. makati1 on Mon, 16th Oct 2017 11:41 pm 

    “Throughout human history, those in the ruling class have found various ways to force those under them to work for their economic benefit. But in our day and age, we are willingly enslaving ourselves.”

    http://www.zerohedge.com/news/2017-10-16/how-elite-dominate-world-%E2%80%93-part-1-debt-tool-enslavement

    “If you want to own a home, that is going to mean even more debt. In the old days, mortgages were commonly 10 years in length, but now 30 years is the standard.

    By the way, do you know where the term “mortgage” originally comes from? If you go all the way back to the Latin, it actually means “death pledge”.”

    How true. Americans have no freedom. If you owe, you are a slave to someone. If you think you own your home/farm, you are wrong. You only “own” it until you cannot pay the taxes or the government wants it for some project. You are a slave to the government. Try to not pay the IRS its due.

    It took me 57 yeas to cut the chains. I am now free. Nothing taxable. No loans. No credit cards. No debts. Just actual LIVING expenses. True Freedom. Something few will ever know.

  3. deadlykillerbeaz on Mon, 16th Oct 2017 11:49 pm 

    Makati1, you forgot no brains.

  4. Boat on Tue, 17th Oct 2017 12:05 am 

    mak,

    In many areas, it is more expensive to rent than to buy. If you have skills, friends and are not lazy you can keep your home in shape and improve it. It’s the lazy with few skills that should pay for rent.

  5. Sissyfuss on Tue, 17th Oct 2017 1:16 am 

    Mak, tell him how far he missed the boat this time.

  6. makati1 on Tue, 17th Oct 2017 1:27 am 

    What does keeping it in shape have to do with actually owning it? You forget that my 40+ year career was in construction. That I started as a laborer and worked my way up as carpenter, draftsman, designer, estimator and project manager. I designed and priced million dollar homes for my employer’s clients when a million was actually a lot of money. I built several of my own during that time. But, had I not made payments or paid taxes, I would have lost them to the bank or government.

    I do rent for now, but that will soon change. An owned home is a money pit. Especially in America where so many codes and laws restrict what you can build and where, and the materials are mostly plastics and sawdust board, built to the minimum standards and with the cheapest materials. Been there, done that.

    Taxes, yes, they have them here also, but they are very low and if you don’t pay, they don’t come and take your home. The taxes on the land my partner inherited had not been paid for over 30 years. No problem. He had to pay a percentage of the 30 years of back taxes to put it in his name, but it was still less than $1,000. That was less than half the ANNUAL property tax I paid on my last US home.

    If you own a home, the ANNUAL costs for maintenance, insurance and taxes will come to about 5% of the home’s value, forever. Add in the interest on the mortgage and you will pay about three times what the house is worth over your lifetime. And you will be a slave to it all of that time. No to mention that you cannot just move when you want or need to. You are its slave.

  7. Go Speed Racer on Tue, 17th Oct 2017 4:14 am 

    Makster, you’re in construction?

    Won’t ya build me a house with a 6- car garage.
    There’s so many collectible cars. And it should have
    a very large workshop too. So Pops can work
    on the Mach 5.

  8. Davy on Tue, 17th Oct 2017 5:37 am 

    “Americans have no freedom. If you owe, you are a slave to someone.”

    You are a slave to your social security blaming and complaining about others being slaves. What a fraud.

  9. Davy on Tue, 17th Oct 2017 5:39 am 

    “You forget that my 40+ year career was in construction.”

    Anyone who is a braggart and a harsh critic of others has definite personality issues.

  10. Davy on Tue, 17th Oct 2017 6:03 am 

    You ever notice how peak oil dot com never has any articles featured that criticize Asia or Europe? You rarely if ever see a positive American article. You would think these people would be above agenda but no they have a clear subjective agenda of anti-Americanism and hence a magnet for wackos. I guess attracting wackos sells. In this day and age it is all about marketing for a buck.

  11. Davy on Tue, 17th Oct 2017 6:20 am 

    Far from a golden decade

    “ECB May Have Only €220 Billion In QE Left If The Hawks Get Their Way”
    http://tinyurl.com/y9wggl98

    “After seemingly sending out trial balloons (via Bloomberg and Reuters simultaneously) on tapering last Thursday, which had almost zero impact (see “ECB Reportedly Considering Slashing QE in Half in January, EURUSD Shrugs), Draghi’s minions have been busy again. “Central bank officials familiar with the matter” told Bloomberg that some – presumably quite hawkish – ECB policy makers “see room for little more than 200 billion euros ($235 billion) of purchases under the institution’s bond-buying program next year.” With said “officials” (who asked not to be named because the talks are not private anymore) seeing a limit to bond buying of 2.5 trillion euros under the current rules and purchases expected to reach 2.28 trillion by the end of 2017, we can do the calculation.”

    “Marc Ostwald, global strategist at ADM ISI in London, also commented on the ECB’s limited room to maneuver. “If they stick to the capital key, then there are only about 55 billion of Bunds that they could buy, which in turn caps what they can buy in total, especially with limits on what they can buy of smaller countries debt. However, they could reduce the relative proportion of govt bonds in a 30 billion euro per month QE pace to try and circumnavigate the problem…but even that will only be a marginal help.” Bloomberg also notes that some policy makers are concerned about the reluctance of investors to sell their bonds “Reducing monthly buying to 25 billion Euros – which would total 225 billion euros over nine months – may address some of those concerns, the officials said.” Perhaps the best tactic here is to release as many trial balloons beforehand, that 26 October becomes a non-event…”

  12. Hello on Tue, 17th Oct 2017 6:20 am 

    >>>>> You ever notice how peak oil dot com never has any articles featured that criticize Asia or Europe?

    Articles criticizing europe are written in the local language, so you only have UK left for english. And I’ve seen plenty of UK articles on PO.com.

    For asia it’s a different story of course. Asia is perfect and doesn’t have a problem, so no negative article needed. 🙂

  13. Davy on Tue, 17th Oct 2017 6:28 am 

    What is in your wallet cloggie?

    “Get Ready For A New Chernobyl In Ukraine”
    http://tinyurl.com/y9vvg4kx

    “With the onset of winter and the increasing strain on Ukraine’s energy system, the threat of a new nuclear disaster in Central Europe is becoming more than just a theoretical danger. According to analysts from Energy Research & Social Science (ERSS), there is an 80% probability of a “serious accident” at one of Ukraine’s nuclear power plants before the year 2020. This is due both to the increased burden on the nuclear plants caused by the widespread shutdowns of Ukraine’s thermal power plants (the raw material they consumed – coal from the Donbass – is in critically short supply) and also because of the severe physical deterioration of their Soviet-era nuclear equipment and the catastrophic underfunding of this industry. Should such an incident occur, the EU would not only be faced with the potential environmental consequences, but also – given the recent introduction of visa-free travel – a large-scale exodus of Ukrainians out of contaminated areas.”

    “Let’s start by taking a brief tour of the Ukrainian nuclear industry: Ukraine currently has four operating nuclear power plants: the Zaporizhia (the largest in Europe, with six reactors and a combined power output of 6,000 MW), the Rivne (four reactors and a combined power output of 2,880 MW), the Khmelnitskiy (two reactors and a combined power output of 2,000 MW), and the South Ukraine (three reactors and a combined power output of 3,000 MW): The Chernobyl plant with its four reactors was finally shut down for good in 2000. Of the 15 nuclear reactors currently operating in Ukraine, 12 were brought online during the Soviet era, prior to 1990. All of them rely on the classic type of VVER nuclear reactors that were designed during the 1960s and 1970s at the Kurchatov Institute in Moscow. Those reactors should have a maximum life expectancy of 30 years. But as of today, 10 of the 15 reactors operating in Ukraine have already outlasted their expected service life.”

  14. Davy on Tue, 17th Oct 2017 7:00 am 

    I agree hello but translations are not difficult in this day and age. I would also mention critical articles of the Anglosphere are few and far between on PO dot com but the criticism from the Anglosphere is overwhelming. Let’s say we need an intellectual version of what we call in the US “affirmative action”. LOL, the racist hate that world. I don’t like it either. Affirmative action eventually becomes a prescription for homogenization and subpar performance. I am the “affirmative action” of balanced criticism here and many hate it. Extremism loves a majority and consensus or how else can extremism survive. Extremism is very potent but also delicate. It can move mountains and die by a few words of truth.

    This condition of extremist anti-Americanism is a distortion and breeds a false reality. I am American critical or why would I be here. The place is a mess. There is no way to defend such a mess but there is a way to defend the truth, balance, and objectivity of that mess. If this world has a chance it will be with a reformed US as a starting point. The world will not survive a collapsed US like we did the collapsed USSR. These are different times. The USSR had its own internal network and the global alternative of the Pax American world the USSR died in was there to accommodate them. Some will say rightly, consume them. The reason Putin is such a great leader is he saved Russia from that unholy consumption of a great people.

    This points to a reality of fixing the US or we are all doomed. It also points to a reality the rest of the world is little better. In the macro global world of grey and nuance real wealth has no borders and it is wealth that controls the world. Globalism is a lot about macro yield seeking with the public and the environment subservient. The individual profit motive quite often trumps national identity at the top in a world of instantaneous digital wealth and information movement.

    Europe and Asia will not survive the collapse of the US. There are no vacuums in the 21st century. We are all together in this project of survival. It is those who choose to preach division and hate that are the villains of the truth and survival.

  15. paulo1 on Tue, 17th Oct 2017 8:58 am 

    Mak,

    Your 5% maint costs for home ownership only applies to those without skills or energy to do their own work. I own a great river front home with an additional 15 acres zoned residential. My yearly taxes = $100/month. My maint costs, roofs, stain…whatever might equal another $100/month. My labour is not priced.

    Due to recent disastors around the world these past 5 years, my damn insurance has now climbed to $100/month…replacement and liability.

    By the way, renters pay all of the above, it is merely priced into the rent. How do I know this? I am almost finished building a rental for future income.

  16. Duncan Idaho on Tue, 17th Oct 2017 9:08 am 

    They are going to loot the train wreck all the way down.

  17. Hello on Tue, 17th Oct 2017 9:48 am 

    >>>> By the way, renters pay all of the above, it is merely priced into the rent

    Yes, of course. But for some reason the dude from manila doesn’t understand. Strange for a guy that supposed to have 40 years experience in theindustry.

    In general, it’s better to own, financially. But I agree, even if you own, you never truly own, you have to rent it from the gov. (taxes).

    Renting however allows for greater freedom. You can pack up and leave on a moments notice. An important feature of being flexible and adapting to rapid change.

  18. makati1 on Tue, 17th Oct 2017 6:22 pm 

    Paulo, I bet, if you add up ALL of your home related expenses, they come close to 5%. Add in your labor as someday you will not be able to do it. I know. Taxes and insurance will increase.

    Yes, renters pay for them, but they can also relocate anytime they want/need to. You are chained to your home until you can sell, maybe at a loss if it is a bad time.

    These are the plus’ and minus’ that have to be considered when you buy. Some only look at what mortgage payment they can afford, not the “extras”, and get a hard lesson down the road.

  19. makati1 on Tue, 17th Oct 2017 6:27 pm 

    Hello, I know that renters pay, I just didn’t include that in my comment. I was just pointing out the added costs of home ownership. You have more freedom as a renter and can easily downsize when you want or need to. If you own, you have to sell, maybe at a loss, if you are no longer able to pay. That will happen more and more as the US economy collapse’.

  20. Duncan Idaho on Tue, 17th Oct 2017 8:13 pm 

    The problem with home ownership is Entropy–
    It only goes in one direction.

  21. makati1 on Wed, 18th Oct 2017 6:01 am 

    “Among the many self-flattering epithets it gives itself, the US has always claimed to be the “leader of the free world”. It’s a rather patronizing notion that America views itself as a selfless protector and benefactor of its European allies and others. This fairytale depiction of the world is coming to a rude awakening as American power buffets against the reality of a multi-polar world. Less a world leader and more like a blood-sucking leech on international relations.”

    http://www.zerohedge.com/news/2017-10-17/washington-bleeder-free-world

    “This is not the idealized conduct of the self-proclaimed “leader of the free world”. America is increasingly seen as the “bleeder” – a declining power which wants to suck the economic lifeblood from others in order to sustain itself. This untenable American unipolar craving is inevitably hastening the reality of a multipolar world, as Europeans in particular realize that they can no longer afford to prop up America’s economic obesity.”

    Nuff said.

  22. Cloggie on Wed, 18th Oct 2017 6:34 am 

    America should become a normal country, like Germany, Russia or China and drop this “exceptionalism” baloney.

    This point is, America and not just its elite, is too much in love with the idea that they are different, superior, of a higher moral order. They are not, not in long shot, but the idea is too attractive to just let it drop.

    The Russians (Soviets) after 1969 knew their economy was inferior to that of the West. In 1990, it was simply dead and the collapse did not really come as a surprise.

    With America it is vastly different. The economy is declining in international comparison, for the masses that is, but it is nowhere as bad as it was in Soviet-Russia in 1991.

  23. Hello on Wed, 18th Oct 2017 6:47 am 

    >>>>>> This point is, America and not just its elite, is too much in love with the idea that they are different, superior,

    It’s actually the opposite. Reading any european newspaper and talking to any european dude on the street who has never been to the US seriously will show quickly that europeans believe themselves as superior. The arrogance of europeans is shameful.

    This Simpsons episode tells it pretty well:
    https://www.youtube.com/watch?v=yM4EZdzucQY

  24. Cloggie on Wed, 18th Oct 2017 6:59 am 

    It’s actually the opposite. Reading any european newspaper and talking to any european dude on the street who has never been to the US seriously will show quickly that europeans believe themselves as superior. The arrogance of europeans is shameful.

    They much better hide it than Americans. I am not aware that any European country today says it is “exceptional” or similar chest thumping expressions. I absolutely do not recognize your references to newspapers or “dudes in the street”.

    But on this planet, deep in their hearts, many groups of people consider themselves “superior”: Americans, Europeans, Japanese, Muslims.

  25. Hello on Wed, 18th Oct 2017 7:08 am 

    >>>> I absolutely do not recognize your references to newspapers or “dudes in the street”.

    Well, don’t you consider yourself superior? Let’s call you a “dude in front of a computer”, if that’s more fitting, instead of “dude in the street”.

  26. Cloggie on Wed, 18th Oct 2017 7:21 am 

    What is the point you are trying to make, Hello? You are on this board the one who uses the crudest language to put down Africans. In this world there is the truth and than there is diplomacy.

    Here is a Chinese lecturing Africans about their non-ability to pick up knowledge and skills:

    https://www.youtube.com/watch?v=Wfg-DK1I1JE

    Chinese are not political-correct. Reason: a certain tribe is “missing” (like the plague) in China.

    Of all formerly white nations, America will be going down the drain first as a former first world nation. Because of its immigration policy, carried out by Washington-NYC axis, where people are in control who want to ruin white America and its colony Europe and take away all power whites have. They openly say so:

    http://tinyurl.com/yaxtf9ks

    But folks like Hello, Davy and boat simply do not understand this. They are more interested in making money than in understanding their own world.

    /shrugg

  27. Davy on Wed, 18th Oct 2017 7:22 am 

    Probably one of the best commenters on this board is Hello for sobriety and objectivity and what he said is spot on in my book. All nationalities who have rich histories look upon themselves as superior so mad kat and clogged mind in this case your anti-Americanism is extremist puke as usual . Most sheeple Americans are too busy worrying about making it to think of themselves as superior. The problem is in the beltway of DC.

  28. Davy on Wed, 18th Oct 2017 7:38 am 

    We are doing fine clogged mind. You don’t know shit about this country and about the white population here. You read too much conspiracies about US problems. The other ethnicities have their niches and contribute to a strong cultural fabric. We have problems but it is like the hill of sand and self-organizing criticality we adapt and adjust. Europe is not doing that and the reason those non-European ethnicities in Europe now are going to be a future IED to your PBM nonsense. They will out breed you and eventually take over you continent. Plus they are poised right to the south of you ready to empty into your weakest parts. Go whine somewhere else about how the US will be destroyed. We may well be the last man standing.

  29. Davy on Wed, 18th Oct 2017 7:43 am 

    Clog, see all is not well in your part of the woods too

    “It’s Sad As Hell” – Swedish Ambassador Admits, We’re “In The Process Of Dismantling Democracy”
    http://tinyurl.com/y7dlavef

    “Sweden’s new ambassador to Iceland has sparked a major controversy after warning that Sweden is “in the process of dismantling democracy” and could be on a slippery slope towards technocracy or a dictatorship. Håkan Juholt, a former leader of the centre-left Social Democrat party and ambassador to Iceland since September, made the comments in an interview with the Svenska Dagbladet newspaper. “How old is your son? Four?” he asks the reporter. “When he is old he won’t be living in a democracy but in a technocracy, or a dictatorship. It’s sad as hell. I am sorry to say it, but I am 100 percent sure. We are in the process of dismantling democracy.”

  30. Hello on Wed, 18th Oct 2017 7:46 am 

    Clog,
    I’m not considering negros to be even human, they are some half-baked monkies that can’t even wear their goverment issued pants right.

    So besides negros I feel no superiority against anybody else (chinese, mexican, arabs, whatever..) AS LONG AS THEY STAY WHERE THEY BELONG.

    It bothers me immensely that in my own country I have to feel like a tourist, instead of a native. If I go to the public swimming pool in summer, I’m hard pressed to find anybody speaking swiss german.
    If I go to the pub to drink a beer, I’m waited by some eastern european import who only understand high german (not swiss german). True-and-tested old swiss traditions are all of a sudden not politically correct anymore because some 3rd world shit seems to be offended. That bothers me.

    But simple claiming we (europeans) are better than anybody else is way too simplistic. There’s pros and cons to everything and nothing is perfect.
    The US for example is full of swiss and german immigrants (from the last few years).
    If switzerland was such a perfect place, why would anybody choose to go to the US? As ususl things are not black and white.

  31. Apneaman on Wed, 18th Oct 2017 11:23 am 

    clog, here’s how they roll in Canada.


    Quebec passes law prohibiting Muslim women from wearing niqab while using public services

    Bill 62 requires citizens giving and receiving public services to do so with their faces uncovered

    “Quebec has adopted a law that would force Muslim women who wear a niqab or burka to uncover their faces to use public services.”

    “The legislation bans public workers — including doctors, teachers and daycare workers — as well as those receiving a service from the government, from wearing the niqab, burka or any other face covering.

    It was extended to municipal services, including public transit, in an amendment made in August.”

    http://www.cbc.ca/news/canada/montreal/quebec-niqab-burka-bill-62-1.4360121

    Religious clothing is such an important part of life. I love hearing the religious monkeys explaining their clothing rules. I wish Christians would bring back those cool pilgrim hats with belt buckles on them.

    Massachusetts ‘Pastafarian’ Wins Right to Wear Colander on Her Head in License Photo

    ““As a member of the Church of the Flying Spaghetti Monster, I feel delighted that my Pastafarianism has been respected by the Massachusetts RMV,” Miller told CBS Boston. “While I don’t think the government can involve itself in matters of religion, I do hope this decision encourages my fellow Pastafarian Atheists to come out and express themselves as I have.” ”

    http://people.com/celebrity/pastafarian-wins-right-to-wear-colander-in-dmv-photo/

    Man wears strainer on his head in driver’s license photo

    “Corbett calls himself a “pastafarian,” who wears the item as part of his religious headgear.
    “Pastafarianism is part of the church of the Flying Spaghetti Monster, which says the world was created 5,000 years ago by a Flying Spaghetti Monster,” Corbett said.”

    http://www.cnn.com/2017/06/01/us/pasta-strainer-license-photo-trnd/index.html

  32. Duncan Idaho on Wed, 18th Oct 2017 9:41 pm 

    “There’s a time when the operation of the machine becomes so odious, makes you so sick at heart, that you can’t take part… And you’ve got to put your bodies upon the gears and upon the wheels…upon the levers, upon all the apparatus, and you’ve got to make it stop! ”

    ― Mario Savio, 1964

  33. Duncan Idaho on Wed, 18th Oct 2017 9:44 pm 

    “Man wears strainer on his head in driver’s license photo
    “Corbett calls himself a “pastafarian,” who wears the item as part of his religious headgear.
    “Pastafarianism is part of the church of the Flying Spaghetti Monster, which says the world was created 5,000 years ago by a Flying Spaghetti Monster,” Corbett said.””

    You do realize this is satire to expose how ridiculous religion really is?

    May his noodleship be with you!

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