Strong Norwegian corporate bond market so far in H2 2023

The market has been strong from the beginning of June with a substantial number of issuances. Most of the issuances have been NOK denominated, with several over 1 billion NOK. Axactor ASA's issuance of a NOK 2.3 billion senior unsecured bond is the largest high yield NOK issuance since 2021.

Many repeat issuers have used the market to secure refinancing, but there have also been some new issuers. As in the first half of the year, repeat issuers have received substantial interest from investors, and they have been able to achieve interest rate levels close to or better than previous issuances (e.g. Kistefos’ NOK 1,250,000,000 senior unsecured bond issue). As opposed to earlier this year, we have seen new issuers being able to attract investors attention as well, which shows that the investors are interested in attractive deals.

There have been issuances in a wide range of sectors, with traditionally strong sectors such as shipping, industry and oil and gas as the primary sectors. Such sectors have benefitted from high oil and gas prices and shipping rates. Floating rate has been the primary choice for interest rate, but we have also seen fixed rates.

Market outlooks

Macroeconomic trends will continue to have a significant effect on the Norwegian corporate bond market. The inflation in key economies have stabilized and started to decline. It is expected that the central banks will start to slow down the increase in interest rates, and a peak is expected in the coming months depending on key figures.

Investors are benefitting from increased interest rates, as well as a low default percentage. As such, the investors have funds available and should be open for new deals. The general market view is that the number of issuances will remain high for the rest of 2023. As the banks are tighter with credit, the bond market is attractive with less tight undertakings and covenants.

Another potential trend is that companies listed on Euronext Growth are potential acquisition candidates. An acquisition will most likely trigger the change of control clause in the respective company’s existing financing agreements. If a refinancing is required, it will be interesting to see if any such companies take the opportunity to raise debt in the Nordic bond market. Given the increased interest in the Nordic bond market from private equity portfolio companies, it may be a likely scenario that a private equity-acquired company will tap the Nordic bond market.

Although the typical industries such as shipping and oil and gas are the primary sectors, we also see activity in other sectors such as industry and private equity portfolio companies. With a continuingly difficult equity market, we expect more companies tapping into the bond market.

Real estate

Real estate bonds are in a somewhat different situation than the rest of the bond market. Several bonds that were issued at significantly lower interest rates have a maturity date later this year or early next year. If such bonds were to be refinanced with bank debt, it would require a substantial amount of equity, and typically tighter covenants. The overall interest rate for bank financing has also increased significantly. We expect issuers to try to refinance their debt, but there may be issuers who are not able to and will have to explore other opportunities, including extensions.

As real estate values decrease and the time for the annual valuations is approaching, we anticipate that some issuers will struggle with satisfying their LTV-covenants. In such a scenario, the repair options are few, and the main one is to repay debt with equity. That may potentially be difficult, given the current equity market. Further, we have seen some real estate developers struggling, as the sale of new properties has slowed down dramatically. Some issuers have had to ask for waivers relating to their covenants, and we have also seen examples of issuers requesting to postpone interest payments.