Story of Interest
Written by Monica Lutz
The impacts of COVID-19 across the globe have been far from subtle, Capital Markets deal flow is no exception. More than ever companies are requiring additional capital to be able to continue operations during a time when periodic economic shutdowns have become the new norm. Stay-at-home orders in areas where COVID-19 cases are high are disrupting many industries.
In this time of distress and low-interest rates, it has become evident that many companies are turning to the capital markets to raise funds. Year to date, US high yield corporate debt is at a historical record high with over 450 issuances and over US$300bn proceeds. For comparison, in the same period of 2019, there were under 300 issuances and under US$200bn in proceeds.
In Canada specifically, DCM debt issuances hit an annual record after only 9 months of 2020, totalling C$211.7bn. The previous record year was 2017 when debt issuances totalled C$185.4bn. Year over year, the first 9 months of 2020 saw an increase of 53% more dealmaking than the same period of 2019. Industries leading this surge in debt issuances were Government and Agency, Financials, and Energy and Power with 63%, 19% and 8% respectively.
Canadian equity and equity-related issuances saw a year-over-year rise of 20% year for the first 9 months period, totalling C$26.5bn. Industries leading in proceeds include High Technology, Energy and Power, and Materials with 29%, 18% and 14% of market share respectively2.
On the flip side, global real estate merger and acquisition activity are at their lowest level since 2012 with just over 2,500 deals and $250USbn value. This is down 27% year to date versus the same period in 2019. This is a particularly dramatic drop-in activity and likely driven by the rapid global transition to work from home in 20201.
Capital markets deal flow trends can be a significant indicator of economic conditions and how corporate companies are responding to the current environment. The dramatic increase in debt issuances demonstrates how in need many corporate companies are for funding to help get them through this crisis. This is also a relatively good time to be taking on more debt due to the very low-interest rate environment. While the near and medium-term is very uncertain, maintaining a close eye on how capital market deal trends continue in the foreseeable future will be a valuable indicator for how corporate companies are responding to, and ultimately recovering from, this pandemic.