(Bloomberg) -- Europe's high-yield market is on track to deliver the year's busiest week for bond sales with Boris Johnson still needing a Brexit deal to take to the British Parliament by Saturday.
Supply this week could reach 4.8 billion euros ($5.3 billion), according to data compiled by Bloomberg. Bankers say that corporate issuers want to get out ahead of negative Brexit headlines while also capitalizing on strong demand from cash-rich investors.
“Progress on some of the tail risks that investors are cognisant of –- such as the U.S.-China trade war and Brexit negotiations between Europe and the U.K. -- are among the factors driving a strong pick-up in primary market activity,” said Andrey Kuznetsov, a senior portfolio manager at Hermes Investment Management.
Record low interest rates are helping drive the surge of issuance as borrowers including Rossini Sarl look to save on interest expense by refinancing their costlier debt stacks. Well telegraphed buyout financings from Merlin Entertainments Plc and Kantar Group Ltd. are also in the mix this week.
Among this week's issues, Selecta Group BV, Evoca SpA and Rossini are all raising floating rate notes, which could attract appetite from loan managers looking for assets to fill CLO warehouses. Demand from CLOs is strong where they see assets that suit their criteria, with a particular focus on better rated single-B names.
Expectations of slowing global growth and a looming earnings season are further factors prompting bond syndicate desks to bring deals to market sooner rather than later.
Demand is so strong in high-yield that the market is back on track to see “the longstanding disintermediation story” where bonds take out loans again, as in the 2013-2016 period, according to Benjamin Sabahi, head of research at Spread Research.
“It looks that everyone is trying to further optimize its capital structure before any negative arises from the Brexit at the end of October and/or when weak third-quarter earnings will weaken year-to-date gains as it has been the case last year in the sell off,” Sabahi said.
--With assistance from Charles Daly and Ruth McGavin.
To contact the reporter on this story: Laura Benitez in London at lbenitez1@bloomberg.net
To contact the editors responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net, Charles Daly
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