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Investment Grade Status Matters

07 September 2016 by lberuti

Bond issuance is on course to break record since the end of the holiday season, and today saw more corporates try and take advantage of record low borrowing costs. Among companies aiming to tap investors’ liquidity, Schaeffler AG marketed €2.5Bln so-called payment in kind debt - which give it the option to pay interest with more debt – that will have maturities of 5, 7, and 10 years. The deal will enable the company to refinance the existing debt of IHO, the holding company of the group, and intends to reduce the indebtedness at Schaeffler AG by roughly €700Bln. Moody’s swiftly upgraded the company to investment grade, and investors send SHAEFF’s (Schaeffler Finance B.V.) 5-year risk premium 30bps tighter to 105bps. The broader market experienced another strong session on balance, even if credit indices are closing off their tightest levels led by some weakness in the US. For now, iTraxx Main has still not broken the 65 level, on which it has bounced a few times since the beginning of August. A lot of hedges have come off recently ahead of tomorrow’s ECB meeting, and it looks as if the market is expecting something from Mr Draghi, which leaves room for disappointment.