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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.<\/span><\/p>\n European borrowers are flocking to the Nordic region to sell their junk-rated bonds, as issuers shut out of other western credit markets plump for a jurisdiction with a reputation for looser investor protections and lighter disclosures.<\/p>\n Borrowing by high-yield companies, often with no obvious connection to the region, using bonds issued under Norwegian, Swedish or Danish law is on track to hit a record level. It had reached about \u20ac15bn this year as of early September, compared with the \u20ac18.1bn for the whole of 2021. <\/p>\n Despite strong investor demand for junk debt, several European banks remain unwilling to underwrite the most speculative credits. As a result, some companies are instead turning to Nordic investment banks such as Pareto Securities \u2014 which describes itself as \u201cthe Nordic Gateway\u201d \u2014 to organise their bond deals. The Norway-based bank accounts for about 30 per cent of the region\u2019s junk deals.<\/p>\n \u201cThe high-yield market is super well bid at the moment, so deals are getting racier and racier,\u201d said one high-yield bond investor. \u201cSome of these racy deals, traditional underwriters aren\u2019t willing to do, so the Paretos of the world do them, which is helping the Nordic market.\u201d<\/p>\n Pareto said that increasing activity in the market \u201cis facilitated by an established track record of solid performance and low default rates, coupled with recognised legal documentation supporting the transactions\u201d.<\/p>\n It added that the \u201clong-term default rate\u201d in the region \u201cis in line with other high-yield markets globally\u201d.<\/p>\n The Nordic region\u2019s surge in issuance this year comes as borrowers rush to take advantage of rampant demand among global investors for risky debt. With many investors looking for new ways to deploy capital as they shift allocations away from the US, the yield premium for junk European issuers over government debt has fallen to its lowest level since 2018.<\/p>\n The Nordic market has long had a reputation as a place where riskier companies \u2014 often small and esoteric issuers \u2014 can find willing buyers of their bonds. This reputation as the wild west of European credit grew after several companies successfully placed bonds in 2018 during a period of negative Eurozone interest rates, only to default shortly afterwards.<\/p>\n As the market has grown, its investor base has shifted from being dominated by local asset managers and family offices to a playground for Wall Street and London hedge funds.<\/p>\n One reason issuers flock to the market is that \u201cthey have to provide less documentation for investors [because] the requirements there are lighter than in Europe\u201d, said Tapio Jokisaari, a portfolio manager at Finnish credit manager Aktia Asset Management, referring to requirements by investors and investment banks that organise the deals. The documents provided to credit investors are typically shorter and include less information than is common in the rest of Europe.<\/p>\n The market\u2019s history of being a home for smaller and unrated credits meant that its \u201csmaller investor community\u201d was more comfortable with companies not having a rating, Jokisaari added.<\/p>\n Unrated issuers such as Oaktree-backed luxury cruise line The Ritz-Carlton Yacht Collection, which \u201ccombines the residential feel of Ritz-Carlton hotels with the freedom of yachting\u201d, and Malta-based private jet charter company AirX Group are among the companies that have issued large bonds in the region. <\/p>\n The cruise line issued\u2009$300mn of bonds with an interest rate of almost 12 per cent in the second half of last year through Norway\u2019s DNB Bank and Pareto. The bonds sank from par to about\u200970 cents on the dollar earlier this year after the company told investors it needed hundreds of millions of dollars in support for activities such as marketing. They have rebounded over the past few months to about 86 cents. Oaktree declined to comment. DNB did not respond to a request for comment.<\/p>\n AirX raised \u20ac115mn in September in order to expand its fleet, which consists of 20 large-cabin jets. The deal was organised and marketed by Norway-based Arctic Securities. AirX did not respond to a request for comment.<\/p>\n \u201cWhile the framework differs from other jurisdictions, it is a well-established and well-functioning market that has provided efficient access to funding for a broad range of companies, with proper requirements for documentation, due diligence and transparency,\u201d said Arctic. <\/p>\n \u201cThere is no evidence that there is a higher rate of misconduct in the Nordics, and default rates have been in line with international high-yield markets for the past five years,\u201d it added.<\/p>\n Meanwhile, KKR-owned butter-substitute maker Flora became the first triple C-rated issuer \u2014 one of the lowest bands in the credit spectrum \u2014 in almost a year when it priced \u20ac400mn of unsecured debt with Pareto and Arctic Securities at an interest rate of 8.625 per cent in June. The debt, branded by multiple credit investors as one of the most aggressive deals of the year, has fallen from par to about 90 cents on the euro. KKR did not respond to a request for comment.<\/p>\n \u201cSponsors [private equity owners] like to use it [the market] because it\u2019s light touch,\u201d said a high-yield bond portfolio manager at a large European asset manager, although they added that this also meant that investors could quickly find themselves facing steep losses. <\/p>\n One of the region\u2019s most well-known credit market fiascos occurred the last time that European spreads were this tight, in 2018, when investors were again chasing higher returns. Lebara Group\u2019s \u20ac350mn of junk bonds plummeted after the Netherlands-based mobile operator failed to provide investors with full financial information. The private family office that used the bond proceeds to finance its acquisition of Lebara restated its own accounts numerous times over the following months.<\/p>\n After issuing a \u20ac50mn Swedish-law bond as \u201ca bridge to an envisaged IPO\u201d in 2018, again via Pareto, Iceland\u2019s Wow Air breached its agreed debt-to-earnings ratio limit two weeks later, and then defaulted six months after that. <\/p>\n Even companies outside Europe are looking to the Nordic region. In September, MM Proton I, a Massachusetts-based manufacturer of building products, turned to Arctic Securities to price a dollar-denominated bond worth $245mn, at a coupon of 9.875 per cent. MM Proton I did not respond to a request for comment.<\/p>\n","protected":false},"excerpt":{"rendered":" Unlock the Editor\u2019s Digest for free Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter. European borrowers are flocking to the Nordic region to sell their junk-rated bonds, as issuers shut out of other western credit markets plump for a jurisdiction with a reputation for looser investor protections and lighter<\/p>\n","protected":false},"author":1,"featured_media":25389,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[49],"tags":[818,3689,1003,3872,15343,306,7344],"class_list":{"0":"post-25388","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-business","8":"tag-bond","9":"tag-borrowers","10":"tag-europes","11":"tag-flock","12":"tag-junk","13":"tag-market","14":"tag-nordic"},"_links":{"self":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts\/25388","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=25388"}],"version-history":[{"count":0,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts\/25388\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/media\/25389"}],"wp:attachment":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=25388"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=25388"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=25388"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}