FirstFT: US corporate borrowing plans hit by slowdown

Corporate America is feeling the pinch from the slowdown in Wall Street’s $1.4tn market for junk-rated loans, with a growing list of companies forced either to pay more or abandon borrowing plans.

A loan extension for California utility PG&E was shelved last month, while Heartland Dental, a provider of services to dentists’ offices, and digital media business Internet Brands had to pay lenders more or agree to tougher investor protections in return for extending loan maturities, according to people with knowledge of the matter.

Borrowers have been hit by shifts in the market for collateralised loan obligations, or CLOs, the investment vehicles that own roughly two-thirds of lowly rated US corporate loans.

Over the past decade these loans have become a critical funding source both for US companies and private equity groups snapping up businesses. CLOs buy up hundreds of different loans, package them and use the interest payments they generate to fund new slices of debt, which are then sold on to banks, insurers and other investors.

As an alternative to tapping the CLO market, some companies are now selling fixed-rate debt in the form of high-yield bonds or opting for shorter maturing loans.

Here’s what I’m keeping tabs on today:

• Jay Powell testimony: The Federal Reserve chair will testify before the House Financial Services Committee in the first of two days of Congressional hearings.

• Narendra Modi: India’s prime minister will lead an event at the UN in New York to mark International Day of Yoga before travelling to Washington.

• Rebuilding Ukraine: Political and business leaders gather in London for a two-day conference to discuss Ukraine’s postwar recovery. Here’s how the FT believes Ukraine should be reconstructed.

Five more top stories

1. Sounds have been identified by a Canadian submarine-hunting aircraft involved in the desperate search for the missing 10-tonne submersible, 900 nautical miles east of Cape Cod with five passengers onboard. Authorities say there is enough oxygen to last until Thursday morning local time. Read the latest on the search.

2. Yields on two-year UK government debt reached their highest level since 2008 today after the latest inflation figures confirmed prices rose higher than expected last month. Sterling was also stronger ahead of the Bank of England rate-setting meeting that starts today. Read more on the latest UK inflation data.

3. JPMorgan Chase is aiming to recover millions of dollars from an insurance policy that protected the US bank against fraud after its botched $175mn acquisition of financial aid start-up Frank in 2021, according to people familiar with the matter. The bank claims Frank founder Charlie Javice misled it about customer numbers.

4. US secretary of state Antony Blinken said China’s espionage activities on the island of Cuba, roughly 350km from Florida, are a “serious concern”. Speaking to CBS television before departing from Beijing, Blinken said he discussed Chinese spy operations in Cuba with top officials in China during his recent visit. Read more about the interview.

5. Singapore’s $700bn sovereign wealth fund GIC has accelerated dealmaking in the US, investing in venture capital funds and technology companies as it searches for growth beyond China. Read the full story.

The Big Read

During Brazil’s presidential elections last October, far-right incumbent Jair Bolsonaro had been attacking the electoral process in ways reminiscent of Donald Trump in the US. In the end, he accepted opponent Luiz Inácio Lula da Silva’s win — a testament to the strength of the country’s institutions. But it was also in part down to a discreet, little-known, year-long pressure campaign by the US government.

We’re also reading . . . 

Chart of the day

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Investment in military tech start-ups is booming as the war in Ukraine and geopolitical tensions with China lead to growing confidence that the US government will give lucrative contracts to Silicon Valley companies making cutting-edge defence systems. US venture capitalists have agreed more than 200 defence and aerospace deals in the first five months of this year worth nearly $17bn — more than the sector raised during the entire of 2019. Read more on the boom for defence technology.

Take a break from the news

The FT spoke to music star Pharrell Williams ahead of his Louis Vuitton debut at Paris Fashion Week. “This is not a job. This is not a gig. This is a dream,” Williams said about his unexpected appointment as creative director of menswear at the world’s biggest luxury brand.

Additional contributions by Tee Zhuo and Benjamin Wilhelm