Borrowers in the US junk bond market are increasingly securing their debt against company assets, in a bid to get deals done against a backdrop of much higher borrowing costs.
Almost two-thirds of junk bonds issued so far in 2023, worth $70bn, have been secured — meaning debt holders can seize assets ranging from ships, planes or buildings to intellectual property or equity in the business in the event of a default. That marks the largest proportion on record, according to data from Pitchbook LCD going back 18 years — with the next highest share in 2019 coming in at just over a third.
The greater share of asset-backed bonds this year underscores the creative methods that companies are resorting to in order to access funding in challenging markets, while trying to minimise borrowing costs that have climbed sharply since the Federal Reserve started raising rates last year to curb inflation.