Friday 15 December 2017

Value of Irish firms' 'junk bonds' shoots up 10-fold in last year

Peter Flanagan

Peter Flanagan

THE value of "junk bonds" issued by Irish companies shot up nearly 10-fold in the last year, as companies like Eircom and Smurfit Kappa took advantage of international demand for the high-yield debt.

A report from the ratings agency Moody's shows Irish companies had issued high-yield bonds worth $4.14bn (€3.2bn) at the end of May, compared with $420m at the same point last year.

The Moody's study on the refinancing needs of unrated private equity owned European companies shows that many firms that were sold under a leveraged buyout are refinancing their loans on the high-yield market thanks to the "extraordinary investor appetite" for junk bonds.

"The easing of the refinancing burden reflects the ability of many highly leveraged, usually medium-sized, companies, to benefit from recent extraordinary market appetite for high-yield bonds to refinance their loans," said Moody's analyst Sebastien Cieniewski.

"An additional factor has been the significant amend-and-extend activity, reflecting the need for collateralised loan obligation lenders to remain invested before their amortisation phases," he added.

OFFERINGS

In Ireland, the junk bond market has been thriving in the past 12 months. Paul Coulson's Ardagh Packaging has issued debt worth more than $2bn on its own, while Smurfit Kappa has sold debt worth more than $1bn in three separate offerings.

Even Eircom, which sought protection from creditors last March, was able to issue €350m worth of debt in April, albeit at a higher coupon than the other companies of more than 9pc.

Looking at Europe in general, the report shows the constant rolling over of debt – known as "amend and extend" – has accelerated, with the maturity dates of more and more debt being pushed out.

In 2012, 22pc of such debt was coming due after the refinancing peak of 2014/2015. Now, 44pc of outstanding bonds are due to mature after 2015.

Despite the "material decrease" in the refinancing burden over the past 12 months, up to a quarter of these companies could still default, said Moody's.

"Despite the weak European macro environment, the strong refinancing activity, mainly undertaken by the relatively larger and more credit-worthy unrated companies, has kept the default rate subdued.

"However, we expect to see the default rate for smaller and weaker unrated companies increase materially over the next couple of years," said Mr Cieniewski.

Irish Independent

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