Is the recent surge in issuance sustainable? Is it a function of either a backlog or uncertainty over future market conditions?


Alex Chambers
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Miles Millard, European head of debt capital markets, Deutsche Bank
The high level of activity we have witnessed this month has been encouraging and reflects the enormous backlog of issuance, particularly in the FIG space. We should expect further market volatility, and borrowers should take advantage of issuance windows as they open.

Roberto Isolani, joint head of global capital markets at UBS
It is sustainable as the issuance backlog has been matched by a liquidity backlog among investors. Judging by recent order books, there is a huge amount of cash out there (nearly all the recent deals have been at least twice oversubscribed) and, given the lack of issuance we saw during the earlier months of the crisis, investors are keen to invest again. Spreads in the corporate sector have come in very quickly in a very short space of time. Redemptions are still healthy, which is obviously supportive of the market volumes.

Issuers are being much more responsive to investors’ spread demands – a healthy flow of deals will continue.

Notwithstanding the above, it would take very little to upset the market again. It would only take another big headline to upset the apple cart.

If the recession spreads and the outlook for corporate business deteriorates, investors will once again become nervous and may move back to the sidelines.

The mood is fragile below the surface and the underlying secondary market remains a dark place. But momentum feeds on itself and the more successful deals printed now will stimulate further issuance and investment.

Philippe Dufournier, co-head of global financing, Europe, at Lehman Brothers
I think the second half of this year will be steady. Volumes for 2008 could reach the levels seen in 2007, and possibly exceed them. There are definitely some issuers who are taking advantage of improved market conditions to tap ahead their targeted issuance schedule.

The decrease in M&A will continue to affect acquisition finance and corporate issuance volumes.

Jim Esposito, head of syndicate and debt financing at Goldman Sachs
Yes, it is sustainable. While issuance has picked up, investment grade volumes are still running below last year’s pace.

Jean-François Mazaud, deputy head of capital raising and financing at SG
Three reasons explain the surge of primary volumes on the bond market: the backlog, the uncertain future, financing/refinancing needs. The total volume issued over the past four months remains lower than the primary market volume of 2007 over the same period. Our new anticipation of total primary volumes for the whole year 2008 (corporates, financials, sovereigns) remains 16% below 2007 total primary issuance and far below historical records reached in 2000-02, while redemptions will slightly increase. We thus consider it can be easily absorbed assuming stabilized market conditions of course.

Siddharth Prasad, head of EMEA FIG capital markets and financing at Merrill Lynch
Recent issuance in FIG has shown signs of normalization, it is too early to call the end of the bear market given that further downside risks remain. The market is healing but not healed.

Q1 2008 new issue levels were down substantially versus Q1 2007, but if the pace of new issuance continues at the current run rate, Q2 will be a record quarter. For FIG, April has already proved to be third largest on record, exceeding volumes for the same period last year (April 2007 $97.2 billion versus April 2008 $155.6 billion), year-on-year we are at roughly similar levels to 2007 ($527 billion versus $523.6 billion). On the corporate side, supply levels are comparable to 2005 levels and in EM we are yet to see the surge materialize.

Market closure has added to the pent-up supply. Additional pressure has come from regulators and rating agencies to access the wholesale market rather than rely on the ECB window

Chris Tuffey, head of EEMEA debt capital markets at Credit Suisse 
This really depends on which sector you are looking at. Certainly much of the recent surge in issuance has been led by financial institutions as the investment, commercial and universal banks have sought to improve their liquidity positions, extend their liability profiles and increase their capital bases by extensive use of the capital markets.

In corporates, some treasurers have taken the liquidity offered to them by the market and successfully raised very large amounts, while others are reluctant to pay current spreads and are waiting for conditions to improve further. To that end volumes are likely to be variable for the next 12 months, but viewed from today the trend is higher in corporates and sovereigns and lower in financial institutions.

Martin Egan, head of primary and global head of debt capital markets at BNP Paribas
I believe the surge in issuance is sustainable for the time being. The backlog and uncertainty of future market conditions are both highly relevant. Even for senior market professionals, the last nine months have provided a shocking reminder of how sentiment can change. A market correction was overdue but the ferocity of it has surprised many. I am very pleased to see the notable improvement in sentiment of late but am not convinced that the rest of this year will be plain sailing. There are plenty of pitfalls ahead, whether it’s bank writedowns, recessions – you name it. Markets will remain choppy, but issuers that prepare in advance both investor work and documentation will reap the benefit.

Stephen Jones, head of European financing solutions group at Barclays Capital
We believe that the recent surge in primary market activity is critically dependent on market conditions. If the underlying markets remain positive, we expect the strong issuance environment to continue, particularly as May and June are traditionally months of healthy supply. April was a record month for US investment grade issuance, and with one week remaining, May has surpassed this.

Supply may however dry up quickly if market conditions turn for the worse. Many less urgent issuers will be more willing to sit on the sidelines until positive conditions return.

Much of the recent supply can be defined as pipeline backlog, although in the investment grade market we estimate that much of this has now been successfully priced. The leveraged backlog however continues to remain significant, as the high-yield bond market has been slow to recover.