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U.S. companies selling debt in euros to buy back shares

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Staff writer ▼ | May 31, 2016
U.S. companies are trying to compete with European companies to issue low-price euro-denominated bonds and take advantage of the quantitative easing currently being conducted by the European Central Bank.
U.S. companies selling
Getting money   The ECB has been buying back about 80 billion euros
A quarter of the €32 billion in Eurobonds issued or announced by U.S. companies.
Since March of last year, the ECB has been buying back about 80 billion euros of mostly government bonds every month, in a program that was recently expanded and extended to include corporate bonds, according to Fitch Ratings.

The ECB is aiming to drive down the interest rates paid by companies on their bonds and encourage banks to lend, boosting the economy and pushing low inflation readings upward.

Unlike their European counterparts who are issuing debt either to refinance existing debt or fund mergers-and-acquisitions activity, U.S. companies getting in on the act are using the proceeds of bond sales to buy back shares, according to Fitch.

A quarter of the €32 billion in Eurobonds issued or announced by U.S. companies that provided a use of proceeds said it was for stock purchases, up 4.5 times on the level in 2015, said the rating agency. U.S. companies accounted for 21% of all euro-denominated issuance in 2016 so far, after a record 23% in 2015.

“This makes U.S. corporates the single largest issuer group by geography, exceeding company bond debt from Germany (16%) and France (12%),” said the rating agency.

While the U.S. share of euro credit markets has declined so far this year, it is likely to rise in coming months and may even set a fresh record for 2016, said Fitch. Overall, euro-denominated primary corporate bond lags last year’s issuance by 9%.

Fitch is expecting the ECB to target about €715 euros in bonds in the secondary market in June, about 1.4% of which will be debt issued by U.S. companies. Already, yields on European non-financial corporate bonds rated BBB have fallen 360 basis points since the ECB said it was expanding its program and issuance of bonds eligible for the program has increased by a factor of four.