``We would love to know when the markets will be back in form and allow us to re-enter,'' said Jonathan Newman, head of strategy at Cell C, a Johannesburg-based South African mobile phone operator that delayed a sale of 625 million euros ($790 million) of junk bonds. ``We don't have an indication or an idea as to when that will be.''
Companies without investment-grade credit ratings have sold only 266 million euros of bonds in Europe this month, the least in 20 months, according to data compiled by Bloomberg. At the same time, the extra yield investors demand to hold junk bonds instead of government debt, or spread, widened to a 19-month high, according to Merrill Lynch & Co. data.
``High yield is all about fear and greed,'' said Tatjana Greil, who oversees $500 million of high-yield bonds among the $113 billion managed at Fortis Investment in London. ``Fear is stronger now than greed.'' Greil said she is ``selectively'' buying some European junk bonds, without specifying which.
No high-risk, high-yield European company has sold bonds of at least 10 million euros since May 4, the day before Standard & Poor's cut credit ratings on General Motors Corp. and Ford Motor Co. to junk. Junk-bond spreads have widened 50 basis points since then. A basis point is 0.01 percentage point.
`Earthshaking'
Cell C pulled its offering on May 9 as the cost to borrow climbed while it was marketing the transaction. The yield spread between junk bonds and government debt has jumped 190 basis points to 466 basis points since GM said on March 16 it would post the biggest quarterly loss in 13 years, Merrill Lynch's Euro High Yield Constrained Index shows.
The wider spreads indicate that on average borrowers will have to pay an additional 1.9 million euros in interest annually for each 100 million euros borrowed.
The reduction in GM's and Ford's credit ratings means about $52 billion of debt sold in Europe shifts to junk from investment grade, more than the 49 billion euros in Merrill Lynch's index. GM and Ford are Europe's fourth- and eighth-biggest European bond issuers, excluding financial services companies.
S&P's downgrade ``was an earthshaking event,'' said Andrew Popper, chief investment officer at SG Hambros in London, who helps oversee $9.2 billion of assets. Popper said European junk bonds account for a ``very small'' share of his funds.
Junk bonds, those rated below Baa3 by Moody's Investors Service and BBB- by S&P, have lost 2.5 percent so far this quarter, the worst since the third quarter of 2002, Merrill Lynch data show.
`It's Horrible'
``It's horrible out there,'' said Philip Milburn, who manages about $2.4 billion of bonds at Aegon NV in Edinburgh and calls himself a ``selective buyer'' of junk bonds. ``Issuers know it's going to be hard to get a deal done.''
Rumbeke, Belgium-based Blagden, which in February 2004 was bought by its management and London-based buyout firm Alchemy Partners LLP, hasn't said how much it's planning to sell. There is no rating on the deal yet.
``Blagden, like our other clients, is going to wait and see,'' said James Amine, co-head of global leveraged finance at Credit Suisse First Boston in London, the third-ranked junk underwriter this year, data compiled by Bloomberg show. ``If the market's not there, then it doesn't make sense to force it.''
Robert Barnes, a partner at Alchemy in London, declined to discuss financing arrangements for Blagden.
Lower Than Average
Borrowing costs are still lower than the average over the past six years, helped by declining yields on government bonds. Junk bonds yielded an average of 7.45 percent on May 19, compared with 12 percent since 1999, according to Merrill Lynch figures.
``Even if the company had to pay a bit more in spread than it may have first expected, it's not the end of the world,'' said Stephane Tremelot, high-yield syndicate manager in London at BNP Paribas SA, the No. 4 underwriter of junk bonds this year.
The yield on the benchmark 10-year German bund touched a record low of 3.27 percent on May 18, from 3.42 percent on May 4, as investors shunned riskier assets and on signs Europe's economy is slowing, Bloomberg data show.
While junk yield spreads have almost doubled from the record low of 242 basis points reached on March 2, they are narrower than the average of about 789 basis points since the beginning of 1999, the start of the euro debt market, Merrill data show. The average maturity of the securities is 5.96 years.
``This is a storm in a teacup,'' said Popper at SG Hambros. ``There was a lack of premiums for risk and now those premiums have been restored.''
To contact the reporters on this story: Jennifer Ryan in London at Jryan13@Bloomberg.net; John Glover in Milan at johnglover@bloomberg.net. Last Updated: May 22, 2005 19:09 EDT
Market Data 
Markets 
AI
