Good afternoon and welcome to another episode of Bond Capital TV. My name is Davis Vaitkunas.
Currently, pessimists are seeing debt spirals that destroy economies, while optimists are looking at exponential AI growth solving everything. It’s certainly raining uncertainty.
Hopefully, the adage that things are never as bad as you think or as good as they seem will play out once again. Only time will tell.
If you have debt and are looking for a proxy interest rate for use in stress testing and model sensitivity, BTV suggests 300 bps over prime for small and medium-sized enterprises and 150 bps over prime for larger companies with access to public markets.
For operators in the United States who are considering issuing senior secured debt, the effective Federal Funds Rate is currently 4.33% and within the 4.25% to 4.5% target range. One year ago, the Fed Funds rate was 100 bps higher.
For large, high-quality issuers, the average yield for a 5-year investment-grade corporate bond in the USA is just over 5%, at 5.09%. A small offering starts at $250 to $350 million in face value.
For smaller American issuers without access to public markets or needing less than $200 million in total borrowing, the US prime rate is currently 7.5% with up to 300 additional bps to compensate for perceived risk. Stress testing senior debt at 9% and 10.5% makes sense currently for US companies.
For operators in Canada issuing senior secured debt, the Bank of Canada’s policy interest rate is currently 2.75%. One year ago, the Bank of Canada’s policy rate was 5%. A nice movement in favour of the issuer there.
The average yield for a 5-year investment-grade corporate bond in Canada is roughly 2.95%. A small offering is $300 million in face value.
For small Canadian issuers without access to public markets and needing less than $200 million, the Bank of Canada’s prime rate is currently 4.95%. One year ago, the prime rate was 7.20%. We suggest Canadian modelers stress test senior secured debt at 6.45% and 7.95% for their companies.
Thank you, this has been another episode of BTV. I hope you enjoyed the update, and we look forward to visiting with you again next time. I’m Davis Vaitkunas for Bond Capital.
