Debt investors on Thursday were anticipating the first below-investment-grade bond sale since November, potentially ending a record dry spell reflecting investors’ concerns about market volatility and the durability of the long-running expansion.
Targa Resources Partners LP, a midstream energy company with ratings at the upper end of the speculative-grade spectrum, was preparing on Thursday to sell $750 million of bonds due 2027, in part to refinance debt coming due soon.
December was the first month since 2008 without a junk-bond sale, according to Dealogic. The Targa deal would end 40 days without a sale, the longest stretch in data going back to 1995. Volatility in financial markets, uncertainty about the economy and the recent drop in oil prices are discouraging riskier companies from issuing debt and investors from buying it, analysts say.
A successful high-yield sale would be a welcome sign for low-rated businesses, which regularly need to raise cash in the debt market. While it isn’t clear who might follow Targa if it completes its deal, there are ample number of companies that would also like to refinance their debt or fund acquisitions, and investors said that the Targa deal could at least open the door for other businesses that also have strong track records.
Slack investor demand recently lifted the premium, or spread, that companies with junk credit ratings have to pay over risk-free government debt to the highest level in more than two years. The corresponding tumble in high-yield bond prices last quarter erased investors’ gains in what had been one of the few bright spots in the bond market in the first nine months of last year.
An expanded version of this report appears on WSJ.com.