Companies are set to issue record debt for a 2nd straight month — and Bank of America says it's because the Fed 'solved' a looming credit crisis

• US investment-grade debt issuance is on pace to post its second-straight monthly record, Bank of America said in a Monday note.
• New offerings totaled $22 billion on Monday, bringing the April sum to $229.7 billion and "within striking distance" of March's $261 billion record, the analysts wrote.
• The Federal Reserve's arsenal of easing policies "solved the liquidity crisis and then some," the team noted, likely fueling the surge in debt issuance through April.
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Issuance of US investment-grade debt is "within striking distance" of posting its second-straight monthly record thanks to the Federal Reserve, Bank of America said Monday.

Companies are rapidly stockpiling cash reserves as the coronavirus pandemic continues to suppress key revenue streams. New offerings reached $22 billion on Monday, bringing the month-to-date total to $229.7 billion, the bank said. With three more days in the month, the primary market will likely top March's record $261 billion in debt issuances.

The borrowing activity was primarily fueled by the Fed's potent efforts to keep companies afloat amid the nationwide lockdown. Easing first took the form of interest rate cuts and liquidity injections before the central bank threw out its traditional playbook and created several targeted lending facilities. Though some of the programs have yet to loan out a dollar, their creation signaled to investors and companies that the authority will go to extraordinary lengths to prop up the recently threatened credit market.

"The Fed has certainly solved the liquidity crisis and then some, before even having bought a single bond," the team led by Hans Mikkelsen wrote.

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The firm doesn't expect the trend to stop anytime soon. Credit drawdowns are set to increase as the primary market opens further, Bank of America wrote. Companies are also increasing the sizes of their credit lines, boosting the potential for bigger issuances down the road.

Bank of America estimates its credit line utilization ratio sits at roughly 29%, compared to 12% in the fourth quarter of 2019 and 30% during the global financial crisis.

The Fed's New York branch recently posted a FAQ for companies looking to tap the central bank's credit facilities. The analysts view such a move as a sign that its bond purchases, completed in partnership with BlackRock, will kick off soon.

Bank of America remains overweight on US investment-grade debt.

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