Money managers to sell corporate debt

Low interest rates are compelling a few money management firms to look at selling corporate bonds.

In June, both Janus Capital Group and Eaton Vance Corp. announced plans to sell debt. And last November, Invesco Ltd. sold $600 million in senior unsecured notes due 2022.

Denver-based Janus announced it entered into separate privately negotiated exchange agreements in which approximately $117 million of newly issued senior notes due 2018 will be exchanged for $110 million of the firm's existing senior notes due 2014. The deal will help reduce Janus' annual interest expense, extend its present debt maturities and boost its financial flexibility, according to a news release from the company. The financial flexibility will enable the firm to pay off its long-term debt obligations.

Eaton Vance, Boston, announced it priced a public offering of $325 million of senior notes due June 15, 2023. Through this offering, the company expects to receive net proceeds of approximately $323 million, according to a news release issued by Eaton Vance.

If the debt is sold, the net proceeds from the public offering will be used to fund Eaton Vance's tender offer for up to $250 million of its outstanding senior notes due 2017. Remaining proceeds will be used for general corporate purposes.

Net proceeds from Atlanta-based Invesco's offering would be used to redeem $197.1 million of notes due Dec. 15, 2014, that will be called, with the balance to be used to repay the majority of the $754.5 million that was outstanding on its $1.25 billion revolving credit facility as of September 30.

Although a spokesman from Invesco declined to comment, a news release issued by Moody's Investors Service revealed the firm's offering is part of its debt refinancing plan. Neal Epstein, a New York-based senior credit officer at Moody's, said in the statement that Invesco was “taking advantage of its good liquidity position and favorable rate opportunities to reduce its debt servicing burden.”

Money managers are not typically known for selling corporate debt with much frequency, but “everyone's refinancing in the last year or so because the rates are so low,” one money manager said.

Not all companies are finding the allure of low rates compelling enough to issue debt in the current market. In fact, some firms, such as Des Moines-based underwriter of fixed annuity and life insurance products American Equity Investment Life Holding and New York-based energy firm Warren Resources Inc. recently decided to postpone issuing debt, citing volatile market conditions.

The market volatility in the past several weeks that saw the yield on the benchmark 10-year Treasury bond rise to a recent high of 2.74% on July 5 and close at 2.57% on July 11, after starting June at almost 2.14%, might lead issuers to conclude they might want to wait for more stable market conditions.

“The conditions in the debt capital markets led us to the conclusion that we should not proceed with the offering of our senior notes at this time,” said D.J. Noble, American Equity's founder and executive chairman in a statement announcing the withdrawal of a proposed offering of $250 million of senior unsecured notes due 2021.

Also, some money managers are postponing debt sales because recent market volatility has resulted in changes in the market price of outstanding debt might make refinancing activity more challenging. Nathan Flanders, a New York-based managing director at Fitch Ratings Inc.'s financial institutions group, said in a phone interview that this can be particularly true if the issuer is looking to repurchase existing debt with the proceeds of the new issuance.

Still, a number of analysts are not particularly surprised that Invesco and other money managers are looking to sell debt. After all, most companies carry debt. Firms like Invesco — which has issued public debt in the past — have revolving debt. So with interest rates remaining relatively low, such firms often feel as though it's good to issue more debt and attempt to refinance at better terms.

“Invesco is just repaying other bonds that they had outstanding,” said Paul Ryndak, a New York-based director, financial institutions at Fitch, in a telephone interview.

Mr. Flanders agreed the scenarios with Invesco and Janus are nothing more than firms looking to benefit from favorable rates.

“Although they do sell debt from time to time, I wouldn't call it a growing trend,” said Mr. Flanders “They're thinking about locking in a lower rate. I don't think there's anything more at play here.”

“It's certainly not any structural shift in thinking. It's just taking advantage of attractive rates,” added Michael Kim, a managing director in the research department of Sandler O'Neill + Partners, New York.