Norwegian High Yield – A Cheap Bridge

As of late, reports on the Norwegian High Yield Bond market have filled the pages of our publications. This is only natural as this market provides capital with flexible terms at competitive rates. It has become the market of choice for the Scandinavian offshore industry, particularly for newer ventures. And shipowners, including one foreign issuer, have also seen the opportunity. Looking at the tenors and the bullet amortizations of these transactions, it appears that borrowers are using them mainly as bridge financing or, alternatively, as a way of playing the yield curve. On the buy side, European hedge funds have been major purchasers attracted by the yields as well as the possibilities offered by the carry trade. Fortunately, Nordea Markets prepared an excellent presentation on the current state of the market from which the following is derived. We have largely used the data and information supplied by Nordea and inserted some of our own thoughts and opinions that naturally are solely ours.

Morten Heiner Pedersen, writing on the credit markets, saw that, during this period, demand for credit remained intact despite the repercussions from the sub-prime concerns here in the United States. It is a very strange market with some issuers giving concessions on spreads while others were renegotiating lower spreads due to strong demand for leveraged loans and others were issuing “cov lite” loans. Nevertheless the correction was much smaller than occurred with the GM downgrade in May 2005 and high yield has surprised positively with the CCC segment relatively unaffected. Although there were only minor changes in the curves steepness, indicating a longer term view of credit spreads remaining unchanged, Mr. Pedersen believes the crisis in the US housing market will continue to affect markets by prolonging the housing downturn.

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