Bank loans are gaining in appeal over bonds for Canadian corporate borrowers looking to move ahead with their funding plans amid concerns about the financial market impact from Russia’s invasion of Ukraine.
“Pricing in the bank market is extremely sticky and looks much more attractive for many borrowers versus short to mid-term bond issuance levels due to the recent widening,” said Brad Saunders, the Toronto-based head of debt capital markets and syndication desk at Desjardins Securities Inc., a unit of North America’s largest financial services co-operative.
Bank financing costs for a BBB rated corporate issuer in Canada have likely stayed unchanged between late December 2021 and now, said Saunders. In contrast, the price to sell a fixed-rate bond maturing in three to five years has widened 30 to 45 basis points -- depending on the sector and once the deal is swapped into floating rates to make it comparable with a typical bank lending offering, he said.
While the U.S. dollar primary market reopened Tuesday, there haven’t been any widely-marketed Canadian dollar corporate bond transaction since Feb. 23 when three issuers including Corus Entertainment Inc. sold debt.
The Canadian credit risk spread touched its widest level since November 2020 on Monday, but remains far from distressed levels, meaning the primary market is still open. So far “you don’t see a major overreaction from corporates on short-term volatility,” said Saunders. “So corporate bond issuance continues to be feasible.”
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