Johannesburg - Bonds of Edcon Holdings, South Africa’s largest clothing retailer, are the best performing junk debt sold in Europe this month as record low yields spur demand for the riskiest securities.
Edcon’s 13.375 percent notes, rated Caa2 or eight levels below investment grade by Moody’s Investors Service, rose 5.6 cents on the euro to 105.6c, according to Bloomberg. That compares with an average increase of 0.5c for speculative-grade bonds priced in euros.
“The high coupon on this deal raised some eyebrows given the low interest-rate world that we operate in,” said Stefan Isaacs, a fund manager at M&G Investments in London who bought the bonds. “For some, this deal was an example of the desire to own yield but we also saw merits in the business.”
Investors are seeking out higher-yielding assets after the European Central Bank cut its benchmark rate to a record low and global default rates fell from a year earlier. That has helped the lowest-rated bonds outperform higher-ranking debt in November, with notes rated CCC and lower returning an average 0.9 percent versus 0.7 percent for single-B rated securities and 0.2 percent for investment-grade bonds, according to Bank of America Merrill Lynch indices.
The average yield on speculative-grade bonds fell 14 basis points to an all-time low of 4.97 percent. The cost of insuring high-yield corporate debt fell 20 basis points to a six-year low during the same period.
Edcon, controlled by US private equity firm Bain Capital, used the proceeds from its e425 million (R5.8 billion) bond sale to repay notes maturing in 2015, the Johannesburg-based company said.
In the high-yield market yesterday, Italian engineering and construction company Astaldi was selling e400m of seven-year notes that would be priced to yield about 7.25 percent, said a person familiar with the matter.
Italian online gaming company Snai was selling e160m of senior subordinated notes and e320m of senior secured bonds, a person familiar with the matter said. The Porcari-based company would use the proceeds to help refinance existing bank debt, it said in a statement on November 20.
About 53 percent of high-yield issuance in Europe this year was for debt refinancing, Claudia Holm, director at S&P Capital IQ, wrote in a report yesterday. – Bloomberg