Analysis

SPAC Surge Pumps Up Junk-Bond Market

, Wall Street Journal

The wave of cash raised by special-purpose acquisition companies is rolling into the junk debt market, aiding distressed companies and rewarding investors who own their bonds and loans.

SPACs, also known as blank-check companies, have issued roughly $100 billion of stock this year, a record, to buy private companies and take them public. Some SPACs are targeting companies with below-investment-grade credit ratings, hoping to use their cash piles to pay down debt and grow the businesses.

Not since the dot.com-boom two decades ago has stock-market enthusiasm been hot enough to fuel such activity in debt markets, bond investors and analysts say.

The SPAC surge coincides with a leap in initial public offerings and a rise of momentum trading by individual investors who coordinate on social media, both of which drive stock prices higher. Funds raised in IPO and SPAC transactions hit about $250 billion this year through April 20, the same amount raised in all of 2020.

Not all the beneficiaries of the stock frenzy have been troubled companies. Loans of Singapore-based digital-ride-hailing and food-delivery company Grab Holdings Inc. were already trading at a premium when it announced last week a merger with a SPAC operated by Altimeter Capital Management LP that valued the enterprise at about $40 billion. The price of Grab’s loans rose 1% on the news. At the same time, private-equity firms which use junk debt to finance their purchases are attempting large-scale buyouts at a pace not seen since the mid 2000s.

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