News from the bond market: taking up debt for acquisitions | EUROtoday

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AIn the previous two weeks alone, American firms have issued company bonds price round $50 billion. In fast succession, the American pharmaceutical corporations Abbvie, Bristol-Myers-Squibb and the IT group Cisco raised a complete of round $40 billion in capital via new bonds.

This alone just isn’t uncommon in occasions when bond traders need to safe enticing circumstances earlier than the central banks decrease key rates of interest once more, however quite the aim for which the funds are used: specifically to at the very least partially finance takeovers and acquisitions. This pattern of more and more financing such transactions utilizing bonds might proceed: Financial information supplier Bloomberg has calculated that there are at the very least $276 billion price of transactions excellent that might be financed utilizing investment-grade bonds within the United States this 12 months might change into.

Why is the time for brand new bonds so enticing for corporations? The yield premium (unfold) over authorities bonds has fallen considerably since final autumn – and with it the prices for corporations to lift capital on this manner. For US company bonds with an A ranking, the danger premium was 1.4 share factors final March; it’s now round 0.8 share factors.

Abbvie, Bristol-Myers-Squibb and Cisco Systems are main the best way

The biotech firm Abbvie alone issued bonds price $15 billion in seven tranches final week. Demand was far larger, with an order quantity of round $80 billion, studies Bloomberg, citing knowledgeable folks. Abbvie introduced the acquisition of two corporations on the finish of final 12 months. The firm acquired the most cancers drug producer Immunogen for a great $10 billion, and shortly afterwards introduced its buy of Cerevel for an additional $9 billion.

Cisco Systems just lately issued bonds of an identical measurement with a quantity of $13.5 billion to be able to partially finance the takeover of the software program firm Splunk, which was valued at round $28 billion. The pharmaceutical firm Bristol-Myers-Squibb (BMS) additionally just lately launched bonds price $13 billion. At the tip of 2023, BMS introduced that it needed to purchase Karuna Therapeutics for round $14 billion and Rayze Bio for a great $4 billion.

It stays to be seen whether or not this sort of financing will even be extra standard in Europe. At least the decreased yield spreads would supply the stipulations for this right here too.