Bernanke Cash Drives Junk Bond Frenzy as JPMorgan Faces Record Competition
By Lisa Abramowicz - Apr 1, 2011 12:00 AM ET
Federal Reserve Chairman "The Ben S. Bernank".
An unprecedented number of investment banks are vying to underwrite a record amount of junk bonds as Federal Reserve Chairman Ben S. Bernanke succeeds in driving cash to the neediest U.S. borrowers.
JPMorgan Chase & Co. (JPM) led 42 firms helping companies to issue speculative-grade debt this year, up from 39 in the first quarter of last year and 14 in the first three months of 2009, according to data compiled by Bloomberg. High-yield bond sales have reached about $88.3 billion in 2011, on pace to exceed last year’s record $287.6 billion, the data show.
The Fed is in the midst of buying $600 billion of Treasuries in an attempt to pump cash into the financial system and encourage investors to wade into riskier debt. The strategy is allowing high-risk borrowers to cut interest expense, extend maturities and avoid missing debt payments. Moody’s Investors Service says the default rate in the U.S. tumbled to 3 percent in February from a peak of 14.7 percent in November 2009.
“They’re all out there and they’re all pitching hard,” said Douglas Coltharp, the chief financial officer at Birmingham, Alabama-based HealthSouth Corp. (HLS), the nation’s largest provider of inpatient services. “Banks go where the activity and the opportunity is.”
HealthSouth has issued about $650 million of bonds with B ratings since the end of September, compared with about $915 million of notes in the previous seven years, Bloomberg data show. Debt rated below Baa3 by Moody’s and lower than BBB- at Standard & Poor’s is considered speculative grade, or junk.
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