The last bubble is seldom reblown, but what about bubbles twice removed?
In what seems like a reply of 2000, an Invasion of Speculative Tech Borrowers is again underway.
Boom in Speculative Tech Financing
Tech companies account for a record proportion of U.S. investment-grade and high-yield bond sales, which is remarkable considering just how much debt has been issued overall.
They also account for an unprecedented share of new leveraged-loan issuance, at almost 20 percent of total sales, according to data compiled by Bloomberg. This is a tremendous increase from even a year earlier and stems from a surge in private equity firms borrowing money to purchase public companies.
Technology private equity buyouts have boomed in the last few years, and the buyout barons are wading into corners of the tech world where they have never ventured before. So far this year, technology companies have made up nearly one-third of the value of all U.S. PE buyouts, the industry’s largest share of PE deals since at least 2004, according to Bloomberg data.
The last time we saw an industry rise to such dominance in credit, it didn’t end well. Energy companies accounted for an increasing amount of bond sales in the years leading up to 2014, when oil prices collapsed and spurred a wave of bankruptcies that’s still rippling throughout the industry.
Buyers of tech debt don’t seem all that worried about history repeating itself in the sector. Returns have been great this year, with the riskiest companies doing the best.
While many of the borrowers will likely stick around and repay investors, some inevitably will not. And this will have a bigger effect on anyone who owns a piece of the $8 trillion U.S. corporate-debt market, which is more investors than ever before.
Debt Looks Good
Don’t thank me, thank your master purveyors of speculation: Alan Greenspan, Ben Bernanke, and Janet Yellen.
Mike “Mish” Shedlock