Issuers Brace for Possible Default
With debt-ceiling talks at an apparent stalemate in Washington, companies who had hoped to raise cash in the stock markets are bracing for a possible freeze-out starting later this week.
Thirteen issuers are currently scheduled to launch initial public offerings this week, according to figures from Dealogic, including the well-known pastry maker Dunkin’ Brands Group.
And Wall Street underwriters say that a variety of secondary stock offerings, whose timing typically isn’t telegraphed in advance, could be poised to hit the markets as well.
But if members of Congress can’t agree to raise the nation’s debt ceiling by the middle of the week, say some bankers, the robust new-issuance market could slow.
“You’d be crazy” to go forward with a stock offering later this week in the absence of a debt-ceiling accord, says one senior bank underwriter, “because there’ll be a risk premium from the market to step in front of the tape,” or proceed when there’s no clear news.
The period from Wednesday or Thursday of this week to Aug. 2, when the Treasury is projected to run out of funds to pay its bills, will be especially treacherous, he says: “You just don’t know what the depth of the market will be…during the days right prior.”
That means that a deal like Dunkin’ Brands, which is scheduled to raise roughly $378 million in a deal to be priced Tuesday night, may be in safe territory.
But for the real-estate investment trust American Capital Mortgage Investment Corp., which is scheduled to price a roughly $350 million deal next week, or the payment processor WageWorks Inc., which is hoping to raise roughly $75 million on Aug. 4, next week’s deadline could prove an obstacle.
Still, some bankers are more sanguine about the market’s ability to cope with uncertainty. “I'm not sure I would describe it as business as usual because everyone’s aware of the macro issues that are going on—debt issues here as well as in Europe—but it’s not stopping business going forward,” says Jeff Bunzel, Credit Suisse’s head of equity capital markets for the Americas.
“I think it’ll make buyers a little more price-sensitive,” he added, and “issuers have to recognize they’re going in to markets that’ll be a little more challenging.”
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