Oct 24, 2022 - Economy

Average cost of high yield bonds issued in October surges to over 11%

Data: Pitchbook LCD; Chart: Axios Visuals

That line is what it looks like when an entire segment of the bond market all but dries up.

State of play: The chart shows the average interest on newly issued deals in the high-yield bond market, where companies with the lowest credit ratings borrow money (junk bonds, if you’re old school).

  • The only other time in recent history the cost was this high? During the Global Financial Crisis.

Why it matters: The Fed’s rate hikes have pushed up the cost of borrowing so much — and spawned such volatility — that only companies that really, really need the money are bothering to brave the market.

  • Not surprisingly, those tend to be the most desperate for cash. And the riskier the company, the more it has to pay.

So far this month, only five companies tapped the market (usually there are dozens by now), according to Pitchbook LCD.

  • One example: AMC Entertainment.
  • The movie theater chain parlayed meme stock mania into over $1 billion in equity issuance since last year — and CEO Adam Aron proclaimed his New Year’s resolution was to refinance AMC’s debt into something less expensive.

But, but, but: The bond market didn’t oblige. AMC is paying 15% on new bonds that closed last week — and the loans that got refinanced cost the company 11.25%.

  • Those 11.25% loans were set to mature in less than a year, though … see what I mean about desperation?
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