Investors can expect to see more high-yield debt coming to market from Canadian companies in the year ahead, according to Moody’s Investors Service.
The rating agency says in a new report that it expects Canadian firms to increase their use of the high-yield debt market in 2017 by issuing greater volumes of both domestic and international bonds and loans. Moody’s says that refinancing requirements, mergers and acquisitions activity and a return of resource sectors to the debt market will drive the rise in new issuance.
“After a significant slowdown in 2016, we expect speculative-grade debt issuance by Canadian companies to increase towards levels of about US$30 billion, up from US$22 billion through November,” said Ed Sustar, senior vice president at Moody’s.
In particular, Moody’s sees Canadian dollar (C$)-denominated bond issuance rebounding in 2017. So far in 2016, domestic market bond issuance reached $910 million and, Moody’s says, this amount will increase over the next two years, “as roughly $5 billion of Canadian-dollar high-yield bonds issued in the last six years will need to be refinanced.”
This year, only 16 new deals were issued in the Canadian speculative-grade bond sector, down from 27 in 2015. Most of these deals (10) were in U.S. dollars, along with five C$ deals and one deal in euros. Moody’s says the decline in new deals is due to this country’s energy and mining sectors, which were hampered by the decline in commodity prices.