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The Champ Feels Some Heat

Stock exchanges in Asia and Europe have made tremendous strides in raising equity capital for companies over the past three years. Is U.S. superiority at an end?

The data invites numerous interpretations for CFOs wondering whether to join the queue. Nasdaq’s McCooey sees the backlog as proof that companies see the United States as the most liquid market in the world. “I spend a good portion of my time speaking with companies we’re soliciting to come to our market,” McCooey says. “They have great businesses and they are ready to come to market. The only thing keeping them back is the overall psychology and negative sentiment in the market now.”

But the unusually high filing rate this past July and August — 5.2 new filings for every deal priced — could also reflect the inability of companies to raise money in the credit markets or find an acquirer rather than a true turnaround in the U.S. equity markets, according to Renaissance Capital. And with the exchange indexes making a daily habit of swinging 1 percent or more, it can be hard to find the courage to pull the trigger on an offering.

“The market volatility of the past year, the sudden violence of the bursting housing bubble and financial downdraft, the extraordinary measures taken by the Federal Reserve and other central banks to prop up the financial system — all of these suggest that anyone claiming to know for sure the strength of the U.S. capital markets is either fooling himself or others,” says Timothy Canova, professor of international economic law at the Chapman University School of Law in Orange, California.

U.S. companies waiting to go public could pull their offerings, of course (149 companies did just that in 2001′s downturn), and move their capital-raising hopes to one of the several booming exchanges around the globe. The large investment banks, after all, are already forming joint ventures in markets like China. Whether U.S. companies go over or not, the question as to whether the United States has finally lost its edge may be settled.

Randy Myers is a contributing editor of CFO.

That Sinking Feeling

The percentage of U.S. issues in danger of being downgraded is climbing.

Even as debate continues regarding the preeminence of its stock markets, the United States is feeling a pinch in another sector: corporate bonds. Nearly a quarter of the entities that currently have rated debt are in danger of having that debt downgraded, according to the latest calculations by ratings service Standard & Poor’s.

An S&P Global Fixed Income Research report (titled “Downgrade Potential across Credit Grades and Sectors”) shows that 747 debt issues were facing possible downgrade in August — 18 percent higher than the total count a year ago, and double the number of issues poised for potential upgrades.

“This continues the trend that started last July, where a materialized housing slowdown coupled with large bank write-downs largely assisted in dislocating the credit markets,” S&P notes in the report. The report defines potential downgrades as entities having either a negative outlook or ratings on CreditWatch with negative implications across rating categories AAA to B–.

Such a big slice of total U.S. issues hasn’t been in danger of downgrade since December 2003, when 26 percent confronted that possibility. The all-time high for such downgrade-ready debt issues was December 2002, when 32 percent stood on the brink, according to S&P’s Diane Vazza, managing director for Global Fixed Income Research.

June saw a momentary improvement, as the number of issues facing downgrade actually declined slightly, to 22 percent. But the upward trend soon resumed. The United States continues to top the list of potential bond downgrades globally.

Broken down by sector, forest products and building materials recorded the highest ratio of issuers with a negative bias relative to their total rated universe, followed by mortgage institutions and automotive. By rating designation, B-rated companies have the highest potential for downgrades, with 156 companies, or 21 percent of the total. Of the 747 issuers at risk for downgrades, 62 percent are speculative-grade, rated BB+ or below. — Stephen Taub and Roy Harris

Foreign company IPOs listed on U.S. exchanges
Total equity raised, 2008


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