U.S. Junk Market Roars Back to Life From Holiday Lull With New Deal Surge

(Bloomberg) -- The junk-debt market has sprung to life in the U.S., arising from a holiday slumber and continuing to recover from one of the worst months of the pandemic.

ZipRecruiter Inc. announced a $500 million bond sale on Wednesday, while billionaire Tilman Fertitta's casino business, Golden Nugget Inc., is looking to raise $5.6 billion of debt, according to people familiar with the matter. Quest Software, meanwhile, is trying to drum up interest in a $3.6 billion loan to pay for its takeover of Clearlake Capital.

The first couple days of 2022 had been quiet, but Wednesday's resurgence adds to evidence that the market is doing well. Spreads for junk bonds and leveraged loans remain historically low -- giving companies good reason to raise money at relatively low borrowing costs -- and a gauge of loan prices hit a more than seven-year high on Tuesday. Investors look poised to put money into high-yield funds for a third straight week.

“High-yield issuance has been a little slow out of the gate but December was a strong month for performance and inflows and I expect issuers will come with supply to meet healthy demand,” said Bill Zox, a high-yield bond portfolio manager at Brandywine Global Investment Management. “Issuers should take advantage of still very attractive rates while investors benefit from high-yield fundamentals that are about as good as they get.”

Issuers have been flooding U.S. debt markets to lock in cheap financing before interest rates rise. The Federal Reserve, which has penciled in three rate hikes for this year, releases minutes from policy makers' December meeting on Wednesday, which investors will parse for clues about the timing and degree of increases.

As issuers tap the leveraged-finance markets, investors are getting a boost. Secondary prices reached the highest level since July 2014 on Tuesday. And investors are adding more money to the space. Refinitiv Lipper data show two straight weeks of inflows into junk-bond funds, and JPMorgan Chase & Co. analysts see that repeating this week.

Leveraged-loan issuance is expected to be robust early in 2022 as companies seek to fund takeovers. Junk-debt sales, though, are seen slowing down this year compared with the record set in 2021. However, the bonds are back in favor after suffering one of their biggest monthly losses of the Covid era in November.

Elsewhere in credit markets:

Americas

Another 11 companies came forward with investment-grade bond sales after more than $23 billion priced Tuesday.

Investors and corporate treasurers will be focused on the Federal Reserve's December minutes later Wednesday as the market looks for clues on rate-hike timing
Toronto-Dominion Bank is the latest financial institution looking to tap the red-hot U.S. corporate bond market as companies look to borrow before yields rise further
ZipRecruiter, the online job search and recruiting company, is tapping the high-yield market for the first time as employers confront spot shortages of workers and high turnover
Private credit firm Runway Growth Capital has provided a $65 million venture loan to SnagAjob.com Inc., an online platform for people looking for hourly-paid jobs in the U.S., according to a statement Wednesday
For deal updates, click here for the New Issue Monitor
For more, click here for the Credit Daybook Americas

EMEA

Europe's primary market is expected to slow on Thursday for the Epiphany holiday in Europe, after a rush of deals on Wednesday set a solid start to 2022.

Italy and Slovenia were among the highlights selling 8.75 billion euros in the first sovereign syndicated debt offerings of the year
Public sector issuers account for over half of this week's volume, according to data compiled by Bloomberg
Despite Epiphany holiday, the first high yield deal of the year is expected to price tomorrow with a 2.1 billion euro equivalent 2-part sale from VodafoneZiggo

Asia

More Asian dollar bond issuers are returning to the primary market after a quiet start to the week, with at least four firms marketing multi-tranche dollar notes on Wednesday.

Those in the market include Hong Kong's airport authority, the Export-Import Bank of Korea, Reliance Industries and Sumitomo Mitsui Financial
- Korea National Oil Corporation has hired banks for a potential bond sale
Real estate firms continued to lead declines in Chinese high-yield dollar bonds, which dropped around 3 cents on the dollar Wednesday morning, credit traders said