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Why has U.S. corporate debt issuance surged?

Matthew Toole
Matthew Toole
Director, Deals Intelligence

COVID-19 has caused high volatility in U.S. money markets and turmoil in the broader economy. As was expected, in the face of this shutdown, Q1 2020 experienced a boost in investment-grade U.S. corporate debt issuance. And it has been significant indeed, reaching the highest quarterly amount since records began 40 years ago.


  1. As the Federal Reserve launched its huge bond purchase program, U.S corporate debt issuance rose to its highest ever quarterly amount as companies tapped corporate bond markets to shore-up their balance sheets and preserve liquidity.
  2. However, this trend was not matched in equity market issuance. The figure dropped 10 percent in the first quarter of 2020 to $37bn. Meanwhile, M&A fared even worse, falling by 50 percent compared with the same period last year.
  3. In Canada, Q1 2020 equity issuance increased strongly by 47 percent from a year ago. However, this was down on the recent highs seen in 2015 and 2016.

The economic turmoil caused by the COVID-19 outbreak created market volatility across the globe. As part of its strategy to combat to the crisis, the Federal Reserve announced an unprecedented bond purchase program that would begin on 23 March.

Following this development, companies tapped U.S. corporate bond markets to shore up balance sheets, extend maturities and preserve liquidity through the COVID-19 pandemic.

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Record-breaking U.S. corporate debt issuance

In its entirety, March saw a record-breaking $204bn raised. In the week of the Federal Reserve announcement, this totalled an astonishing $82bn. And these trends laid out in the late weeks of the first quarter have intensified through the spring.

U.S. corporate investment grade debt has nearly doubled from levels seen a year ago. The all-time monthly record for issuance was broken in March 2020, and again in April 2020. May is also progressing at record pace.

United States investment grade — proceeds. What’s behind the surge in U.S. corporate debt?

High-yield issuance rose by 11 percent during Q1. This accounted for just over half of the worldwide total of $108bn. Following the announcement of the Fed’s junk bond program just days before quarter-end, this trend may reflect just the start of a rush to issue high-yield paper by corporate America.United States marketed monthly high yield volume. What’s behind the surge in U.S. corporate debt?

As a result, debt capital market (DCM) underwriting fees breached $10bn during the quarter for the first time since records began in 2000. This represented a 13 percent year-on-year increase.

Equity market issuance and M&A

Equity markets issuance was a less rosy picture. U.S. issuers raised $37bn, a 10 percent fall on the year, and took 29 percent of the worldwide market, which was the lowest proportion since 2011.

The outlook was even worse for M&A.

Corporate activity involving a U.S. target was down by half compared with the same period last year, to $256bn, the lowest first quarter since 2014. Just four of the 10 largest M&A transactions world-wide — Otis Elevators (#3), UTC Climate Controls (#4), E*Trade Financial Corp (#7) and EQM Midstream Partners (#8) — involved U.S.-based targets.

With just 35 percent of the global market, it was the weakest relative performance from the U.S. since 2012.

In the Americas, the industrials sector was the most popular for M&A activity, at $76.4bn, followed by financials at a distant second, which was worth $51bn.Americas announced M&A — macro industry composition

Private equity sponsors

Private equity financial sponsors can normally be relied upon to take up some slack during sharp downturns, as they seek to ‘buy low’ — but not so far. Sponsors’ share of the Americas M&A market fell almost half, from a historically high 28 percent in Q1 2019 to 14 percent in Q1 2020.Americas M&A financial sponsor activity. What’s behind the surge in U.S. corporate debt?

What’s the picture in Canada?

Across the U.S.’s northern border, Canadian equity issuance hit C$7.1bn. This represented a very strong 47 percent increase, year-on-year. However, this was still notably lower than the golden years for Canadian equity issuance of 2015 and 2016.

Meanwhile, proceeds quarter-on-quarter increased by 9 percent. Canadian common stocks and secondary sales saw similar leaps, at 93 percent and 56 percent respectively.

Canada equity and equity-related issuance (C$bil). What’s behind the surge in U.S. corporate debt?

Restoring market confidence

With records being broken in all directions during the COVID-19 public health crisis, it’s a brave market observer that makes predictions.

But there are some things we do know: Public sector intervention in the U.S. occurred late in the quarter and continued into Q2, so there may be even more upside for DCM players ahead.

Meanwhile, the ability of such intervention to restore confidence and underwrite equity risk is much less clear, so the downside appears equally uncapped for equity and corporate deal-makers. Even in the world of investment banking, this pandemic is no ‘great leveller’!

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