Paychex sells $4.2 billion bonds for Paycor acquisition
Bond issuance resumes after tariff-induced market pause
High-yield bond market faces outflows amid spread widening
Updates throughout with market commentary and data
By Shankar Ramakrishnan and Matt Tracy
April 8 (Reuters) - Paychex PAYX.O announced the sale of a $4.2 billion three-part bond on Tuesday, the first corporate bond offering to be launched since primary markets dried up after President Donald Trump imposed sweeping tariffs on U.S. imports last Wednesday.
Paychex, a provider of human resources, employee benefit and payroll services, is using the bond to pay for its $4.1 billion acquisition of Paycor HCM, announced in January.
Paychex is selling bonds with maturities of five, seven and 10 years. The decision to launch the bonds came against the relatively amenable backdrop of a rebound in stocks, said one syndicate banker.
The five-year bonds are set to price with a spread of 125 basis points over Treasuries, the seven 135 bps over and 10s 145 bps over, all of which roughly carried about 5-10 bps of new issue premium. This premium is higher than usual but required to clear deals after recent widening in credit spreads, said a second senior syndicate banker. Order books earlier in the day totaled nearly $18 billion, the second banker said.
Tuesday morning's deal snaps a three-day drought in U.S. corporate bond issuance after last week's tariff announcement, as investment-grade and high-yield bond spreads, or the cost of issuance, have widened their most in nearly two years.
Investment-grade spreads ended Monday at 120 bps, or 24 bps wider since last Wednesday, the widest they have been since November 2023.
Junk bond spreads have widened 119 bps since last Wednesday after ending Monday trading at 461 bps, which is their widest level since June 2023, according to ICE BAML data. .MERC0A0, .MERH0A0
High-grade bond investors appear to have taken the recent spread widening as a buying opportunity, according to Dan Krieter, director of fixed income strategy at BMO Capital Markets.
"Whatever the driver, the recovery in risk tone this morning opens the door for the return of supply after three straight sessions featuring no issuance," Krieter wrote in a Tuesday note.
Fears of a tariff-induced global recession have weighed most heavily on the junk bond market, which remains in an issuance dry spell as many companies face their highest cost to borrow in nearly two years and investors price in volatility.
Outflows from high-yield bond funds have surged so far in April, according to LSEG Lipper data. There have been $3.43 billion in outflows as of Monday, as compared to roughly $215 million inflows last month and $4.62 billion inflows in February.
Yet there seems to be nothing to suggest panic selling in the high-yield bond market despite the recent spread widening, noted Matt Kennedy and Nichole Hammond, high-yield portfolio managers at Angel Oak Capital Advisors. Instead, they and other bond investors are "being patient and selectively adding while tariff-exposed and lower-quality names are underperforming."
Flows into U.S. high-yield bond funds https://reut.rs/3G0O92w
(Reporting by Shankar Ramakrishnan and Matt Tracy; Additional reporting by Patturaja Murugaboopathy; Editing by Kevin Liffey and Nia Williams)
((Shankar.Ramakrishnan@thomsonreuters.com; +1 2017590156;))
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