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As pandemic roils Canada, companies tap bond market by most in a decade

Stock Markets Jun 14, 2020 02:10PM ET
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2/2 © Reuters. Illustration photo of a Canada Dollar note 2/2

By Bharath ManjeshR and Fergal Smith

BENGALURU/TORONTO (Reuters) - Canadian companies went on a debt binge as the COVID-19 crisis slammed the economy, with Canada Inc rushing to the bond market at the heaviest pace in at least a decade.

Corporate bond issuance in Canada between January and May jumped 22.5% to C$78.4 billion ($57.9 billion), according to Reuters calculations, as companies raised funds to safeguard their finances during unprecedented businesses shutdowns.

Cash raised via bonds would make issuers financially more resilient should a second wave of coronavirus infections stall economic recovery. Bonds tend to come due over a longer period than bank loans, adding comfort.

"You don't want to be caught in a situation when you do need the access to capital markets and they're closed off to you," said Barry Schwartz, chief investment officer at Baskin Wealth Management.

Helping reassure credit markets, the Bank of Canada cut rates to near zero in March and began its first large-scale bond-buying program.

Some borrowing was pre-funding and some was used to pay down lines of bank credit, said Brad Meiers, head of debt capital markets and syndication at HSBC Securities. If additional liquidity was needed, he explained, companies could then have room to borrow more.

Banks, miners, energy firms, retailers and real estate firms were among those raising debt. The increased borrowing could be a problem for companies facing slowdowns or with high existing debt loads.

Already, the debt-to-equity ratio of private non-financial corporations jumped to 212% in the first quarter, the highest since 2009, official data showed on Friday.

"Leverage ratios are definitely a concern," said Benjamin Reitzes, a Canadian rates & macro strategist at BMO Capital Markets. "There may be a hangover from all this."

With the central bank forecasting a further sharp drop in second-quarter GDP, companies could be in for more pain.

"Businesses might need a little more cash to get through all this and that in turn means again, more issuance, just maybe not at the pace we've seen in the last couple of months," Reitzes added. ($1 = 1.3533 Canadian dollars)

As pandemic roils Canada, companies tap bond market by most in a decade
 

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Comments (2)
Abdulla Abd
Abdulla Abd Jun 14, 2020 5:47PM ET
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The number of death in 2019-2020 for all reasons in my province is around 10000, the number of death from corona virus is 61. I guess someone wanted just to crash the market but required some news to make as a justification lol
Chris Marshall
Chris Marshall Jun 14, 2020 5:47PM ET
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The economic crash had more to do with how much the global economy is to each country and each province is to each other. Yes the shutting down of the global economy as well as all the local economies was equally wrong. But most of this was just a case of follow the leader (and the leader was headed the wrong way). Lessons out of this...Lead yourself
Robert Mutter
Robert Mutter Jun 14, 2020 5:47PM ET
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So because death is normal then it is wrong to fight a pandemic, is that what you are saying?
Jozef Drozd
Jozef Drozd Jun 14, 2020 4:22PM ET
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there's no real pandemic it is just the name " deadly virus and covid19 pandemic " with 80% or more of asymptomatic people . It is a joke . Almost 3 000 000 Americans die from different causes every year .
jj mm
jj mm Jun 14, 2020 4:22PM ET
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this is something beyond a real crisis. it has something to do with war trade between China and USA
 
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