The junk bond market has reached another milestone in setting a record-low coupon on a new issue, as a rally triggered by the Federal Reserve and heavy inflows into funds allow companies to test the floors of borrowing costs.
Ball Corp., an aluminum packaging company, sold 10-year notes at a 2.875% yield, according to a person with knowledge of the matter. That’s the lowest-ever for a U.S. junk bond with a maturity of five years or longer, according to data compiled by Bloomberg.
The debt deal comes amid a surge in issuance from high-yield borrowers seeking to cut interest expense on existing debt as yields approach unprecedented lows of 4.95%. They closed Friday at 5.31%.
Companies are capitalizing on a credit rally that keeps on giving, initially sparked by the Fed’s foray into the market in March and since supported by months of heavy inflows. Investment-grade firms are reaping the benefits too, with yields at an all-time low of 1.82%.
The market dynamic has been a boon for companies eager to raise liquidity and push out maturities during the Covid-19 outbreak. About 40% of high-yield deals sold last week priced at a yield of less than 4%.
Ball, which is rated just one notch below investment grade, has benefited from higher consumer demand for its aluminum beverage cans as more people eat at home during the pandemic, according to its earnings released last week. It originally sought to borrow $1 billion but was able to boost the size of the deal by $300 million, the person said.
The company first sounded out investor interest for a yield of around 3%, the person said. It will use proceeds to repay borrowings from its revolving credit facility, as well as repurchasing its 5% senior notes due in 2022. Goldman Sachs Group Inc. led the bond sale, the person said.
© Copyright 2020 Bloomberg News. All rights reserved.