Market Uncertainty Is Making It Very Difficult For Borrowers To Raise Cash

REUTERS/Jonanthan Ernst

(Reuters) - Prospective borrowers ranging from U.S. companies to county governments on Monday shelved a raft of deals to raise new capital or refinance debt as a suddenly uncertain interest rate environment dented demand.

In the municipal bond market, half a dozen deals aimed at raising collectively more than $300 million were postponed, while several companies pulled plans to refinance syndicated bank loans. Corporate bonds, meanwhile, passed a fourth day with no deals brought to market, either in the risky high-yield sector or the safer investment-grade sphere.

Raising capital has been challenging to say the least since last Wednesday when Federal Reserve Chairman Ben Bernanke sent interest rates soaring by outlining a plan to wind down the central bank's massive stimulus program.

Known as quantitative easing and consisting of $85 billion a month in bond purchases, the program was instrumental in a rally of bonds, equities and commodities, and had driven interest rates to record lows. But since Bernanke's comments last week, the yield on the benchmark 10-year U.S. Treasury Note has shot up 37 basis points, briefly touching a two-year high of 2.67 percent on Monday.

"We need to have panic selling (in Treasuries) out of the way and a stable level on the 10-year Treasury," before the new-issue market can return, said Scott Schulte, senior investment-grade corporate bond syndicate manager at Citigroup.

That needs to be followed by borrowers willing to sell bonds at higher yields than they had to under the Fed's easy-money regime.

Corporate bonds had been flying off the shelves until recently as companies looked to refinance at record low rates and yield-hungry investors were ready to sign checks. Since Bernanke first floated the notion last month of a pull back from bond buying, corporate bonds have fallen hard and are now down for the year by 3.74 percent on a total return basis, according to the Barclays investment-grade index.

"The level to which investment grade corporate bonds are interest rate sensitive will certainly be an eye-opener to many total return investors when they open up their quarterly statements on June 30," said Edward Marrinan, head of Royal Bank of Scotland's US research.

Said CrediCorp Capital CEO Christian Laub: "What we know is that we won't see cheap financing like we did in the early half of the year."

MUNI BOND SALES STALL; LOAN REFINANCINGS SHELVED

Municipal issues have also slowed to a crawl, with bond sales worth $331 million postponed on Monday. That brought the total value of deals shelved since mid-June to $2.6 billion.

A steep price drop in the $3.7 trillion municipal bond market has lifted yields on bonds due in 10 and 30 years to levels not seen since 2011.

"Public officials do not want be the ones selling a deal at yields which result to be top of the market," said a municipal bond analyst who declined to be named. "They prefer to wait for the market to calm down and become more stable before pushing ahead with their sales."

Loop Capital, a muni bond underwriter, recently cut its estimate for 2013 muni issuance to $360 billion from $400 billion, but Loop Managing Director Chris Mier said they may cut their forecast more if present conditions persist.

Still, the two big munis deal of the week remain on the calendar for now: $1.3 billion each from the state of Illinois and the city of Los Angeles.

In the syndicated loan market, Loan Pricing Corp, a unit of Thomson Reuters, reported that Beats Electronics, the consumer audio company founded by rapper Dr. Dre, pulled a $600 million to $650 million senior secured loan deal designed to finance a dividend recapitalization.

Meanwhile, aircraft part manufacturer PRV Aerospace shelved a proposed repricing due to market conditions, sources told LPC.

STOCK ISSUANCE ALSO HURT

Equity capital raising is also at risk, bankers said. At least 10 initial public offerings are due to price this week and analysts said some could be postponed, while IPO activity is expected to slow in the coming weeks.

Bankers remain hopeful that two of this week's biggest IPOs, a $1.3 billion offering by industrial distribution company HD Supply and a $642 million offering by technology distribution company CDW Corporation, will price. But both deals are not yet covered and are facing some pushback on valuation.

"It's a nervous and anxious time this week for IPO investors," said IPO Boutique's managing director Scott Sweet.

Last week, specialty retailer Five Below Incpostponed a secondary share offering citing "current capital market conditions."

Further south, Azul Linhas Aéreas Brasileiras SA, Brazil's third-biggest airline, is considering postponing an IPO scheduled for as early as next month and expected to raise some $450 million because of market conditions.

The end of the upcoming quarter, as well as the July 4 U.S. holiday contribute to the expected slowdown, but poor after market performance of recent IPOs such as perfume company Coty Incand in-flight wireless provider Gogo Incare also to blame.

(Writing by Rodrigo Campos; Reporting by IFR Markets credit team, Loan Pricing Corp and Reuters Chicago and New York bureaus; Editing by Dan Burns and Andre Grenon)

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People cross a street in front of a monitor showing file footage of Edward Snowden, a former contractor for the U.S. National Security Agency (NSA), with a news tag (L) saying he has left Hong Kong, outside a shopping mall in Hong Kong June 23, 2013. Snowden left Hong Kong on a flight for Moscow on Sunday and his final destination may be Ecuador or Iceland, the South China Morning Post said.

Good morning. Here's what you need to know.

Markets in Asia were just modestly lower after a rough Monday sell-off. The Japanese Nikkei 225 fell 1% and China's Shanghai Composite was basically flat. European markets are up modestly, and U.S. futures are pointing to a higher open.An official from the People's Bank of China said the bank would guide interest rates to a "reasonable range." Markets were encouraged that by these words, which seemed much less hawkish than yesterday's hawkish comments. Perhaps the country will be able to avoid an all-out credit crisis.President Obama will be speaking at Georgetown University later this morning where he will be discussing a new climate change plan. According to the AP's Josh Lederman, Obama will "announce he's issuing a presidential memorandum to launch the first-ever federal regulations on carbon dioxide emitted by existing power plants."NSA leaker Edward Snowden continues to be on the run. He also continues to create problems for U.S. international relations. In a front page story for People's Daily, the official newspaper of China's Communist party, Snowden should be praised for "tearing off Washington's sanctimonious mask."Details continue to emerge regarding the sudden ouster of Men's Wearhouse founder George Zimmer. According to Reuters Nadia Damouni and Siddharth Cavale, Zimmer had been clashing with his handpicked CEO for months.According to the Confederation of British Industry, the UK's June retail sales grew at its highest pace in four months.  This is good news for the country as it tries to escape recessionary forces.We have a lot of economic data coming today. At 8:30 AM ET, we'll get the crucial Durable Goods Orders report.  Economists estimate that CPI climbed by 0.2% in May. "[W]ith the exception of the Kansas Fed manufacturing index, regional manufacturing surveys ... posted negative readings in May," said Wells Fargo's John Silvia. "Despite this weakness, May’s headline reading will likely be boosted by an increase in civilian aircraft orders."We get quite a bit of housing market data. At 9:00 AM ET, we'll get the Case-Shiller home price index. Economists estimate that home prices climbed 1.5% month-over-month in April. "Figures collected by data provider CoreLogic suggest that home selling prices in the twenty metropolitan areas canvassed by S&P/Case-Shiller (SPCS) not only remained on an uptrend but also accelerated sharply in April," said Societe Generale's Brian Jones who believes prices could be at their highest levels since October 2008.At 10:00 AM ET, we'll get the New Home Sales report. Economists estimate new home sales climbed to a pace of 460,000 in May, up from 454,000 in April. "New Home Sales should improve  significantly to a 465,000 unit annual pace in May, as indicated by a surge in mortgage purchase applications," said Morgan Stanley's Vincent Reinhart who has an above-consensus estimate.Also at 10:00 AM ET, we'll get the Consumer Confidence report. Economists estimate consumer confidence slipped to 75.0 in June from 76.2 a month ago. "Since the start of June, equity prices have been very volatile," noted Capital Economics' Paul Dales. "Labour market conditions are only improving gradually. For example, jobless claims have been below 350,000 in just two of the last four weeks. These factors probably explain the falls in some of the other measures of sentiment that have already been released." Follow 10 Things Before the Opening Bell and never miss an update! Get updates in your Facebooknews feed.

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