The pick-up lure of liability management
In the lull between the fundamentals of European companies improving and their expanding or acquiring rivals, there's been a dearth of new credit issuance. Hence the interest investors have taken in liability management deals. Investors claim to see good returns from these, but this is by no means guaranteed.
SPECULATIVE TRADERS AS well as some institutional investors are now buying the short-dated debt of almost any European company on the bet that they might be able to cash in on the next liability management trade to come to market.
It's the latest sign that liability management, for some time now a regular feature of US debt capital markets, has found a home in Europe.
A lot of time and energy is being devoted on the buy and sell sides to predicting which company will be next to offer investors a juicy premium to buy back its bonds. Dresdner Kleinwort Wasserstein recently produced a list of companies it covers in the iBoxx non-financial index with debt maturing before January 1 2009, identifying the next likely candidates to do a liability management trade. Contenders include Telecom Italia and Dutch media company VNU.
One credit trader says that over the past few months, as issuers buy back short-dated debt and extend their maturities, there has been strong investor support for short-dated corporate paper.