Barclays: Companies hold back on bond issuance, new deal volume down 20% from 2009

By Andrea Heisinger

New York, Sept. 23 - The corporate bond market won't be running at its current issuance highs forever, analysts from Barclays Capital said Thursday in New York.

"You're not going to see companies overloading on debt," said head of research Larry Kantor

Despite the large amount of new deals over the last couple of weeks, supply is down 20% from 2009, said co-head of U.S. credit strategy Jeff Meli.

"Everyone can get blinded by high demand," he said. "The two days after Labor Day there were more bonds [priced] than in the month of May. It strained the system a little bit."

Although many companies have adequate cash at hand, that doesn't mean they should be using it for things like share buybacks, Meli said.

"I think companies learned a significant lesson in '08 and '09 to be more liquid and less levered. You might ask, why not take advantage of cheap money [in the debt market] to do 'x'? They learned their lesson on how liquid to run the balance sheets."

Because of this, some companies are holding back from issuing.

The Barclays analysts have a positive outlook on corporate financial health.

"We remain constructive on credit globally," Meli said.

Corporate balance sheets remain in good shape, with cash at all-time highs, he said, leaving corporates very well positioned.

There should be moderate spread tightening in the near future, although sovereign spreads may not be a part of that trend, Kantor said.

Kantor also looked ahead to the remainder of 2010, and said the economic slowdown is a mid-cycle pause. "It occurs four to six quarters into recovery," he said, in reference to speculations of a double-dip recession. "There are a lot of uncertainties ahead like mid-term elections and possible changes in tax policy."

Treasury bond yields have gone down and corporate bond issuance has picked up, he said.

"It's not true that weak economic conditions translate into weak market conditions."

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