Firms With $5 Trillion in Cash Hoard Seen Ready to Splurge

(Bloomberg) -- Companies look poised to start splashing out some of the cash they hoarded during the coronavirus pandemic, unleashing a flood of capital spending and payouts to shareholders, according to a report by Janus Henderson Investors.

Firms hold record cash reserves of $5.2 trillion, after adding $1.1 trillion to their “war chests” during 2020, the investment management firm said. That amount was almost twice the sum of the previous five years combined.

Companies took on record amounts of new debt in 2020 to build a liquidity cushion as governments shuttered swathes of the economy to limit the spread of the virus. Firms have so far been thrifty with those funds, and raised little additional debt in 2021 to date, leaving them free to put their cash to work as economies emerge from the pandemic.

“An investment boom is highly likely after the Covid-19 freeze,” Tom Ross and Seth Meyer, fixed income portfolio managers at Janus Henderson, said in the report. “This will account for a large portion of the reduction in cash balances this year but share buybacks and higher dividends will be part of the story too.”

The resulting spending explosion will cause net debt to increase, even if the total remains broadly flat, Janus said.

Net debt, which represents a company’s total debt minus cash, is set to rise by $500 billion-$600 billion this year to almost $9 trillion in the asset manager’s corporate debt index.

Net debt is a key metric of balance sheet health, used in rating companies’ ratios that measure companies creditworthiness. The positive flipside is that the prospect of higher economic growth promises better cash flow and improved debt leverage ratios.

This combined with continued central bank stimulus and low default rates prompts the portfolio managers to look for opportunities among rising stars, or companies upgraded from a junk rating to high-grade.

Janus favors food and beverage companies, such as Kraft Heinz Co., and automakers, such as Ford Motor Co., as well as opportunities in the energy and consumer sectors, the firm said.

Europe

• Deutsche Lufthansa, Romania and the AA are among 16 issuers raising at least 7.8 billion euros in Europe’s primary debt market Wednesday
  • Russian energy giant Gazprom is offering about $1 billion bonds maturing in 10 years
  • Lufthansa is offering 3-year and 8-year notes
  • Among financials, Arion Bank tapped the market for a 300-million euros green bond
    • The Dutch bank ING Groep raised its 2021 supply expectations for sustainable bond sales from financial companies to EU62b from EU35b

Asia

• Chinese junk dollar bonds have been suffering the worst selloff since the pandemic roiled markets last year, as investor concerns about China Evergrande Group drag on the sector

U.S.

• Nomura Holdings Inc. and Mizuho Financial Group Inc. are leading the charge in what dealers project will be a $15 billion to $20 billion week, with Yankee issuers playing a big role.

  • Carnival Corp. is tendering as much as $2 billion of debt. The offer will expire on Aug. 2. The following securities are targeted by the offer: CCL 11.5% 04/01/23
  • Mortgage investors had a bad first half in 2021. As of the end of June, the Bloomberg Barclays U.S. MBS index has produced an excess return versus Treasuries of -0.46%, the worst performance seen over the first six months of any year since 2015, which also saw a -0.46% tally
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