A way in for European smaller issuers
Pimco, the world's largest bond investor, switched out of lower-rated corporate paper in favour of higher-rated bonds last month, amid fears that the corporate bond market bubble might be about to burst. But there's a counter-argument: in Europe, buy-side demand for credit means that smaller, even unrated, corporates might be able to come to the market for the first time next year.
“Some companies are too small to be listed yet corporate lending cannot finance all their growth,” says Christian Dinesen, head of European credit research at Merrill Lynch. “Given the bid for credit at the moment, it seems that these sorts of high-quality companies, perhaps even those that don't have a corporate rating, could come to the market."
Dinesen points out that there are also a lot of triple-B rated issuers that would be rated single-A were it not for the small size of their companies.
Some syndicate heads agree that investors are prepared to consider corporates that they might not have looked at before. “When the market is not heavily supplied and with the supply there is coming mainly from financials, investors are going to give new corporates a better hearing,” says Michael Ridley, head of European syndicate for JPMorgan.