Aluminium can maker Ball Corporation secured the lowest-ever borrowing costs for a US junk-rated company on Monday, as income-starved investors shrugged off lingering concerns over Covid-19 in their pursuit of higher yields.
Ball raised $1.3bn through a 10-year bond, paying an annual coupon of 2.875 per cent, according to people familiar with the terms. It was the lowest borrowing cost clinched in the junk debt market for a 10-year bond, according to financial data provider Refinitiv.
The strong investor demand followed the best month for high-yield bonds since 2011 in July. A rally in junk debt has erased the losses investors suffered at the depths of the coronavirus-induced sell-off in March.
At double-B plus, Ball holds the highest junk rating assigned by the big credit rating agencies, one notch below the threshold to be considered investment grade. Investor appetite for Ball’s bond allowed bankers — led by Goldman Sachs — to lower the coupon below 3 per cent and increase the size of the deal from $1bn.
“This is another sign of the insatiable hunger for yield the world is currently facing,” said John McClain, a portfolio manager at Diamond Hill Capital Management.
Companies have secured a number of record-low borrowing costs in quick succession this year as financial markets have recovered. Amazon locked in the lowest coupons on three-, seven- and 10-year US investment-grade corporate bonds in June, but was usurped by Google-owner Alphabet in early August. Alphabet agreed to pay just 1.1 per cent per year on new 10-year debt last week.
One of those records was broken again on Monday as Visa raised cash. The credit card company borrowed $500m through new seven-year debt with a coupon of just 0.75 per cent, undercutting Alphabet by 0.05 percentage points on its recently issued seven-year notes.
The average yield on junk bonds has plummeted from more than 11 per cent to 5.36 per cent, according to Ice Data Services. However, that rate is still significantly higher than investment-grade bonds.
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