As the US presidential election looms, corporate borrowers are strategically tapping into the investment-grade debt market, seeking to secure financing before potential market turbulence. Companies like Marsh & McLennan Cos Inc and Waste Management Inc are among those leading the charge, leveraging the current favorable borrowing conditions to fund their respective acquisition plans.

Capitalizing on Tight Spreads and Low Yields

Securing Financing Before Election Uncertainty

Businesses have been actively accessing the bond market throughout the year, taking advantage of relatively low borrowing costs to address their debt needs. However, with the impending election, companies are now racing to lock in financing before the potential for increased volatility. By issuing debt now, they aim to get ahead of any post-election market fluctuations, ensuring they have the necessary funds to execute their strategic initiatives.The current environment presents a delicate balance for corporate treasurers and CFOs. While some may opt to wait out the election, others, particularly those with acquisition plans, are seizing the opportunity to secure financing at attractive spreads. As Winifred Cisar, global head of credit strategy for Creditsights Inc., explains, "Costs are up a little, spreads are super tight, so it's easy to go to your board of directors and say we tapped the market on a spread basis, we wanted to get ahead of volatility. That's a super easy narrative overall."

Navigating the Timing Considerations

The surge in debt issuance is expected to continue, with companies potentially considering market access even on the days surrounding the release of the nonfarm payrolls report and the election itself. However, Cisar anticipates a slowdown in activity between the election and the Federal Reserve's November 7th meeting, as market participants await the outcome and its potential implications.The timing of these debt offerings is crucial, as companies strive to secure financing before any potential post-election volatility. Marsh & McLennan, for instance, is issuing $7.25 billion in debt across seven parts, with the longest portion, a 30-year bond, expected to yield 0.95 percentage points above comparable Treasuries. This debt will help fund the company's $7.8 billion acquisition of McGriff Insurance Services, announced in September.Similarly, Waste Management is selling $5.2 billion in debt across five parts, with the 30-year note potentially yielding 0.875 percentage points above Treasuries. This financing will support the company's acquisition of Stericycle, a medical waste disposal firm.

Navigating Market Conditions and Volatility

The current market environment presents both opportunities and challenges for corporate borrowers. While the average yield in the high-grade market remains below levels seen earlier this year, it has been trending higher since September, reflecting the broader shift in market dynamics.For some companies, these higher yields may be a deterrent, prompting them to hold off on issuing debt. However, for those with pressing financing needs, such as acquisition-related funding, the tight spreads and relatively low borrowing costs still present a compelling case to access the market now.As Cisar notes, "I think there's a fairly balanced approach right now by treasurers and CFOs. Costs are up a little, spreads are super tight, so it's easy to go to your board of directors and say we tapped the market on a spread basis, we wanted to get ahead of volatility. That's a super easy narrative overall."The strategic timing of these debt offerings underscores the importance of corporate agility and foresight in navigating the evolving market landscape. By seizing the current window of opportunity, companies are positioning themselves to weather any potential post-election turbulence and execute their growth strategies with confidence.