The credit crunch that briefly paralyzed capitalism is slowly becoming a distant memory as further signs emerge of the slow thawing out in the capital markets. This will one day lead to "normal" credit conditions in the market, which will help with the expansion of the economy.
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The Fed's Good News
Every quarter, the Federal Reserve Board releases its Senior Loan Officer Opinion Survey on Bank Lending Practices. The survey asks the officers if they have changed lending standards on commercial and industrial loans, and credit lines. The October survey said that net percentage of banks tightening standards was 15%, half of the 30% that reported tightening in the July survey.
While this might not seem like good news, it is down considerably from the peak of the credit crunch in the fourth quarter of 2008, when the net percentage of banks tightening standards was at 83.6%. This 83.6% was also the highest net percentage reported since 1990. The October 2009 survey also reported drops in the net percentage of banks tightening standards for commercial real estate loans.
The corporate debt markets are also starting to open up again as evidenced by the large number of borrowers raising capital here over the last few months. U.S. corporate bond issuance, both investment grade and high yield, peaked at $1.1 trillion in 2007, before sliding down through most of 2008 and early 2009. Year to date through October 2009, $740 billion in bonds have been issued, 13% higher than the same time in 2008.
Companies Taking Advantage
United Rentals, Inc. (NYSE:URI) was one of the companies issuing debt. The company issued a total of $650 million in senior notes and convertible debt, and will use part of the proceeds to redeem some of its high cost debt that carries a coupon of 14%. The new senior note issue has a coupon of 9.25%, and extends the term by five years.
Another good sign was that United Rentals was able to issue the debt around the same time that Moody's (NYSE:MCO) downgraded the company to a B3 rating.
Beazer Homes (NYSE:BZH) is planning to tap the capital markets for debt. The company filed a shelf registration authorizing the issuance of up to $750 million in debt or equity. During the third quarter, Beazer Homes issued $250 million of five-year notes with a coupon of 12%.
On the investment grade side, Lockheed Martin Corporation (NYSE:LMT) came to market in a two-part deal and raised $1.5 billion in 10 and 30-year notes, and Raytheon Co. (NYSE:RTN) sold $500 million in ten year notes to investors.
The Bottom Line
The capital markets continue to unfreeze as fewer lenders are tightening loan standards and more companies, particularly on the junk bond side, are able to tap the capital markets. This will help further expansion in the economy and create jobs. (For more, check out The Debt Ratings Debate.)
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