Time to Raise Cash While You Can
When General Electric was forced to call in Warren Buffett to help it raise money on in the international capital markets on Oct. 1, 2008 the entire corporate landscape changed.
Just days after the fall of Lehman it became clear that even a giant like GE could not even roll over debt without paying the sage of Omaha a huge premium for his vote of confidence. (GE is the parent company of CNBC.)
Two years later it appears the market has finally returned to a state where companies feel confident they can raise money in the bond markets. When GE raised the $15 billion in 2008 it was a matter of survival. Companies raising cash now want to lower the cost of borrowing and in some cases invest in the future.
After a great end to 2009, where corporate debt prices rose and spreads fell, some are predicting more of the same in 2010.
Joe Biernat, the chief investment strategist at European Credit Management, told CNBC spreads will tighten further but at a slower pace over the first half of the year.
Unfortunately for those firms trying to raise cash via the bond markets, Joe expects problems in the second half of the year when central banks begin to withdraw liquidity from the system.
The corporate bond market is not alone in fearing an end of quantitative easing. But for those considering buying into the asset class over the next few months should be careful.
- Watch Joe Biernat interviewed on CNBC above.
Giants of the industry like Barclays Capital and Deutsche Bank are indicating that companies should consider refinancing now before rates inevitably rise. Those who can get offerings away at low rates will be getting a good deal for shareholders. Once the debt is syndicated and sold onto the capital markets those holding the new debt could find themselves looking at big losses as we head into the summer.