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European junk bond sales hit record as investors cut US exposure

June issuance of about €23bn beats previous high four years ago as companies take advantage of lower borrowing costs

Sales of risky European corporate debt surged to their highest ever level in June, as lowly rated companies take advantage of a capital flight out of US markets on fears over the fallout from President Donald Trump’s trade tariffs.

Issuance by high-yield, or junk-rated, companies — many of which have previously struggled to access the market — rose to about €23bn in June, according to JPMorgan data. That beats the previous monthly record, set in June 2021, by roughly €5bn.

June also saw the greatest number of deals on record at 44, according to PitchBook data.

“The market is drowning in new deals,” said an investor at a European credit hedge fund.

Junk-rated companies are responding to a fall in borrowing costs due to greater demand from investors, many of whom are shifting allocations away from US assets due to Trump’s erratic trade policy and concerns about the government’s huge borrowing needs.

Although the US stock market has rebounded strongly in the second quarter, a broad shift away from dollar bond markets has continued, helping drive the greenback to its weakest start to the year in more than half a century. European high-yield bond funds, meanwhile, have posted seven straight weeks of inflows, according to Bank of America data.

Such has been the demand in Europe that companies including bullets manufacturer Czechoslovak Group and butter-substitute maker Flora in the past week have been able to tap bond markets that previously proved difficult to access.

“There’s a massive amount of cash to be invested . . . It’s the kind of market where people are looking at the art of the possible,” said Ben Thompson, head of Emea leveraged finance capital markets at JPMorgan.

KKR-owned Flora’s deal marked the first by a triple C-rated issuer — one of the lowest bands in the credit spectrum — in almost a year. Investor demand for riskier credits meant it was also able to issue the bonds under Norwegian law, a regime that has traditionally been lighter on disclosures and protections than some other western markets.

Flora priced €400mn of bonds on Monday at a yield of 8.625 per cent, roughly four percentage points lower than other outstanding debt with a similar rating, and after the company had to pull another bond deal last year.

Prague-based CSG was able to price new five-year dollar and euro debt at yields of 6.5 per cent and 5.25 per cent respectively last week. That marks a dramatic decline in borrowing costs since its most recent financing, a $775mn bond in November that the Financial Times reported was sold to private credit firms at an interest rate of more than 11 per cent.

Also in the market offering new euro-denominated debt to investors is junk-rated Carnival, the world’s largest cruise operator, which in the past few years was forced to price deals secured on its cruise ships at double-digit interest rates.

High yield spreads — the extra yield over government debt that risky borrowers must pay — have dropped from more than 4 percentage points in April to 3.1 percentage points at the end of June, according to Ice BofA data.

“You can print pretty high risk stuff at very attractive rates at the moment. The market is running red hot,” said one high-yield bond investor. “There are inflows coming into our market as people are looking to diversify away from the US.”

President Trump’s trade policies have prompted many big investors to rethink their overwhelming preference for the US, given the greater level of uncertainty.

“There’s a huge amount of capital flowing into the asset class . . . and we are starting to see larger managers focus more on Europe,” said Thompson.

Issuers with troubled pasts, or those offering complex and subordinated instruments such as payment-in-kind bonds — where interest can be rolled up into the principal to be repaid on maturity — have also been eagerly welcomed by investors with large amounts of cash to deploy.

Footwear giant Skechers last week priced €1bn of bonds, alongside another $2.2bn of bonds that included a payment-in-kind feature, with the euro portion being increased from an initial offering size of €750mn.

“Managers are desperate to invest,” said one leveraged finance banker.

Saks divisive debt reshuffle shows a retail sector under strain

US department store chain has made some of its creditors very unhappy with their unequal treatment

What could be more relatable than a holiday spending blunder? Last December, US department store chain Saks acquired rival Neiman Marcus for $2.7bn. To help fund the deal, it issued $2.2bn in bonds. And already, the combined business has found itself struggling to meet a $120mn interest payment due on Monday.

Saks has responded in a no less relatable way: by going deeper into debt. Late on Friday it announced a complex $600mn fundraising that provides some breathing room. But the US retail sector is floundering, and in trying to dig itself out of a hole, Saks has made some of its creditors very unhappy.

Typically when a company borrows money, investors who provide the same class of capital — say, participating in a given bond issue — get equal treatment. Saks, though, has opted to divide and conquer. A slim majority of bondholders agreed to put up much of the new money. But in return they get to hold the company’s most senior-ranked debt, meaning they gets top treatment in any bankruptcy. Some of this investor group’s existing bonds will be converted into the new type too.

Not so for the minority, who are largely left with their existing bonds pushed further down the pecking order. This kind of unequal treatment has a name in debt restructuring circles: “creditor-on-creditor violence”. 

Saks presumably bets the bruised feelings will be worth it in the end. The deal is certainly helpful to Richard Baker, Saks’ billionaire owner, since restructuring avoids a bankruptcy in which his equity could prove worthless. Baker is already busy: he also owns Hudson’s Bay, a Canadian department store retailer in the middle of bankruptcy proceedings.

The lossmaking Saks thinks it could, with cost cuts and various accounting adjustments, make $1bn of ebitda in 2026. That suggests a company worth just under $6bn, valued on the same multiple at which luxury rival Nordstrom was recently acquired. But with more than $5bn of group debt, even in this rosy scenario the equity looks to have little value.

Retail is particularly prone to kick the can exercises where companies use their intellectual property, real estate and inventory as security to raise capital when in dire straits. And still, lenders to the sector get burned. An analysis from Fitch Ratings found that 34 of 79 recent retail bankruptcies ended in liquidations instead of reorganisations, four times the rate across all sectors.

Saks can pit creditors against one another partly because its bonds came with fairly loose conditions, as often happens when financing is raised during periods of market complacency. That incentivises borrowers to try various stunts in order to avoid bankruptcy. But as with any credit-fuelled holiday splurge, the bill eventually comes due. Saks has six months until its next interest payment. A less-than-merry Christmas looms.

German lender’s risk-weighted assets could increase by one-third by 2033

Deutsche Bank has laid out a steeper than expected capital hit from new rules on how banks calculate risk, as European lenders begin to reveal the impact of Basel IV reforms.

Under the new rules, which will be fully implemented by 2033 and limit the extent to which banks can use internal models to calculate their risk-weighted assets, Deutsche’s RWAs would increase by one-third, based on figures from the lender’s latest Pillar 3 report which includes key information required from banks under the current regulatory framework.

The German bank has repeatedly clashed with regulators over its internal risk models in recent years.

Risk-weighted assets are important in determining how much capital regulators require a bank to have. Watchdogs are seeking to limit the extent to which banks can use internal models to calculate their RWAs, and so cut down the variation in capital requirements between banks.

The changes, which would take Deutsche Bank’s RWAs to €470bn, threaten to drag down Deutsche’s core capital or CET1 ratio, a measure of capital strength.

The figures in the report indicate that the ratio would drop from 13.8 per cent to about 10.4 per cent by 2033 — well below the bank’s current target of 13.5-14 per cent and less than its current regulatory minimum of 11.3 per cent.

Under the new rules, from 2030 internal model RWAs cannot be less than 72.5 per cent of the standardised calculation — or they will be subject to a so-called output floor.

Deutsche’s chief financial officer James von Moltke told investors in 2023 he anticipated a “day one impact” of about €30bn in higher RWAs by 2030, after taking steps to “offset some of the impacts of the output floor”.

But the figures from the bank’s latest Pillar 3 report indicate that, in a worst-case scenario, Deutsche’s RWAs would rise by €63bn by 2030.

Analysts at Autonomous estimate that Deutsche Bank would be among the most affected lenders in Europe.

Just 33 per cent of the bank’s RWAs are currently calculated using standardised models, compared to more than 50 per cent at BNP Paribas and UBS.

The biggest jump in RWAs from the shift to standardised models would come from Deutsche’s corporate loan book, which would rise from €101bn to €179bn. Residential mortgage RWAs would also increase from €32bn to €51bn.

The bank noted that the figures “do not reflect any mitigating impact from potential legislative revisions which are currently under discussion,” nor the effects of its own mitigation plans in the years ahead.

“In recent years we have consistently demonstrated our ability to absorb and offset the impact of regulatory changes through a combination of mitigating actions, capital efficiency measures resulting in RWA reductions, and organic capital generation,” Deutsche said.

The bank added that its strategy, financial targets, and capital return plans remained “unaffected by these amendments”.

Deutsche shares have fallen 6 per cent over the past two trading days following the publication of the disclosure late last week.

Analysts at Citi described the market reaction as “overblown”. “Given the long transition timeframe, and likelihood that the final rules will change, we see no near-term impact on capital return prospects,” they said.

Other European lenders which are expected to be affected by Basel IV include SEB, Danske Bank and UBS, according to analysts at Citi, Morgan Stanley and Autonomous.

Some banks might even benefit from the new rules initially. The RWAs of Deutsche’s local rival Commerzbank would decline from €174bn under the current methodology to €165bn by 2030 and only climb to €190bn by 2033, based on their latest Pillar 3 report.

UK banks are not expected to report under the standardised framework until 2027, when Basel IV is currently scheduled to take effect.

Elon Musk’s generative AI startup, xAI, has raised $10 billion in debt and equity, reported CNBC.

The company secured $5 billion through a strategic equity investment, according to Morgan Stanley as cited by CNBC. The remainder of the capital was obtained through term loans and secured notes.

The raise comes just over six months after xAI raised $6 billion in a Series C round of funding at a $50 billion valuation. That financing included participation from Valor Equity Partners, Vy Capital, Andreessen Horowitz, Sequoia Capital, Fidelity Management & Research Co., and Kingdom Holding Co., among others. XAI also raised $6 billion in a May 2024 Series B round that valued the company at $24 billion.

It is not known what xAI’s new valuation is after this latest financing.

The company will now have more dry powder with which to build out its ChatGPT competitor, Grok. The chatbot is trained off data from another one of Musk’s companies, X. In March, xAI acquired X. According to CNBC, xAI was valued at $80 billion in the deal, while X was valued at $33 billion.

xAI competes with a number of other startups including OpenAI, Anthropic and Mistral AI. In late March, OpenAI announced it had raised $40 billion, one of the largest private funding rounds ever raised. It was valued at $300 billion after that financing.

Meanwhile, in early March, Anthropic was valued at $61.5 billion post-money after raising $3.5 billion in a Series E round of funding.

The Paris restaurant, famous for its caviar-topped potato, has hooked up with Venetian atelier Dellaluna for a permanent collection of bags.

IN THE BAG: You can imagine an evening bag in the distinctive turquoise color of Caviar Kaspia‘s tablecloths and napkins would be a conversation starter — even if it doesn’t shelter a tin of Beluga Royal.

On Tuesday night in Paris, the landmark fashion canteen hosted a cocktail party to toast a new collaboration with Dellaluna, a Venetian maker of leather goods, perfumes and fine jewelry.

The Dellaluna x Caviar Kaspia partnership has spawned a permanent offering of Italian-made leather handbags, evening clutches, a structured document case and a men’s pouch, to be sold at all Kaspia locations and on its e-commerce platform.

“We wanted to create something lasting,” said Silvia Paulon, founder and creative director of Dellaluna, whose Venice flagship is located a blini’s throw from Harry’s Bar.

That said, there will be a limited-edition tote bag — dubbed the Spiaggina — with 50 units priced at 1,600 euros each. The summery style is made of Togo leather and finished off with silk embroidery by Dellaluna’s artisans.

Most of Paulon’s handbags, incorporating motifs evocative of Italian Gothic architecture, are hand sculpted in calfskin with 18-karat gold hardware.

For Kaspia, they are given an “after dark” allure, as the historic restaurant on Place de la Madeleine in Paris serves caviar-topped potatoes and Norwegian salmon until 1 a.m.

According to Kaspia chief executive officer Ramon Mac-Crohon, the tie-up with Dellaluna is “part of a deliberate movement into timeless objects that hold the same spirit as our tables in Paris, London or New York.”

The house has partnered with MK2 to sponsor the four-day film festival for the first time since its move from the Grand Palais.

PARIS — Fashion, film and fine art will join forces for Cinema Paradiso, a four-day film festival at the Louvre, with support from Chanel.

The house has boarded as a sponsor for this summer’s edition of the open-air film festival held in the Cour Carrée. The event, which runs Wednesday to Saturday, will transform the heart of the museum into a community space with food, concerts and evening film screenings.

Longtime Chanel ambassador Sofia Coppola will open the program, hosting a 25th anniversary screening of her debut film “The Virgin Suicides.”

The event is organized by French indie cinema group MK2. Cinema Paradiso first launched in 2013 as a private, ticketed event at the Grand Palais. In 2019, it relocated to the Louvre and shifted toward a free, public-facing event.

Chanel was on board in 2015, in part due to its longstanding ties with the Grand Palais, but this year is the house’s first time supporting the festival at the Louvre location.

“What we love about Chanel is that they are very sincere in their investment toward cinema. They are supportive of movie productions and movie restorations, and have a long-term engagement with the film industry,” MK2 chief executive officer Elisha Karmitz told WWD, noting the house has a team specifically dedicated to film partnerships.

That division is overseen by Elsa Heizmann, Chanel’s global head of fashion’s relationship with cinema. She told WWD the house’s return to the project reflects its broader belief supporting cinema.

“Inviting the public to discover or rediscover films on the big screen in the heart of iconic Parisian locations naturally aligns with Chanel’s belief that cinema should be an experience of wonder and sharing,” she said. “This year’s eclectic programming in the Cour Carrée of the Louvre once again promises four absolutely magical evenings.”

Chanel brought on board Coppola to present her cult classic on opening night.

“It was a somewhat crazy idea but one that immediately excited us,” Heizmann said of inviting the director. “Sofia Coppola is a cult filmmaker both for viewers like me who saw ‘Virgin Suicides’ when it was released 25 years ago and for a whole new generation of young directors and cinephiles who are discovering her films and are often moved or inspired by her work,” Heizmann said.

Coppola’s longstanding relationship with Chanel runs deep. Chanel recently created the wedding dress worn by Cailee Spaeny in Coppola’s film “Priscilla,” and she directed the teaser for Chanel’s most recent Cruise collection.

“The relationship between Chanel and Sofia has been long established and has grown over time through multiple creative collaborations,” Heizmann said.

Chanel’s renewed involvement with Cinema Paradiso highlights the House’s deep and ongoing ties with the industry, a relationship that extends beyond red carpet dressing. “This [event] perfectly illustrates the uniqueness of the relationship and dialogue that Chanel maintains with the Seventh Art,” she added.

This year’s event coincides with the weeklong gap between men’s fashion week and couture, which starts on Sunday. The Louvre itself is hosting its first exhibition dedicated entirely to fashion, on view through Aug. 24. That made the inclusion of fashion-minded films a natural choice, Karmitz said.

“With fashion in mind, bringing in Coppola was quite obvious,” he said. In the fashion vein, MK2 also programmed Wong Kar-wai’s “In the Mood for Love,” long considered one of the most stylish films of the 2000s.

The lineup also includes a tribute to David Lynch, whose films were long distributed by MK2.

“It was important to have to us and for the family to pay an homage to David,” Karmitz said.

The festival will close with the public premiere of “The Secret Agent,” the Brazilian feature directed by Kleber Mendonça Filho and starring Wagner Moura. The two took home the best director and the best actor prize at the Cannes Film Festival in May and will be on hand to present the film.

Karmitz emphasizes that this will be a cinema experience, with a full theater-quality movie screen and the quality sound to match. “It’s about honoring cinema with technical excellence, even in an outdoor setting. It’s kind of a French way of doing a big pop-up cinema event,” he said.

He described the project as an effort to elevate film as an art form among fine art, as well as build communal experiences in this divided, algorithmic age.

“The idea is also to express the fact that cinema is bringing people together to share emotions collectively in front of a piece of unique storytelling,” Karmitz said. “That’s the purpose of art. That’s the purpose of the Louvre — to create enlightenment, create education, and to create a community together.”

Karmitz noted that the Louvre’s broader summer programming reflects a shift toward inclusion. “It’s also a way for many Parisians who sometimes won’t enter the Louvre for an exhibition to get in contact with this space and this more classical culture,” he said.

“We consider cinema as a total art,” Karmitz added. “Cinema would be impossible without fine arts, without fashion, without photography, without music.”

Other programming includes concerts and a variety of food trucks for a festival atmosphere ahead of the screenings.Tickets are distributed through an online and social media lottery, while Chanel will host an opening night cocktail.

Legacy aerospace giants scored a win Tuesday when the U.S. Senate passed President Trump’s budget reconciliation bill that earmarks billions more for NASA’s flagship Artemis program.

The $10 billion addition to the Artemis architecture, which includes funding for additional Space Launch System rockets and an orbiting station around the moon called Gateway, is a rebuke to critics who wished to see alternative technologies used instead. Among those critics are SpaceX CEO Elon Musk and billionaire entrepreneur Jared Isaacman, who Musk proposed as the next NASA administrator.

There’s no sign the souring relations between Musk and Trump are recovering. If Trump signs the bill, the fallout, which began after the president’s abrupt revocation of Isaacman’s nomination, will likely continue — if not escalate.

Musk in particular has taken aim at the Space Launch System (SLS) rocket on the grounds that it is fully expendable. Unlike SpaceX’s family of rockets, which are all designed to be reusable, SLS is one-time use only. As Musk put it back in 2020, that means “a billion dollar rocket is blown up” every time it is launched. Even that may have been an understatement; more recent figures from NASA’s watchdog put recurring production costs closer to $2.5 billion each.

A total of around $24 billion has been poured into SLS production to date, funds that have primarily gone to a consortium of aerospace primes, including Boeing, L3Harris’ Aerojet Rocketdyne, and Northrop Grumman, which leads construction of the major rocket components.

During his recent confirmation hearings with the Senate, Isaacman questioned the massive sums. He affirmed using SLS for the next two Artemis missions, but ultimately said he didn’t think the rocket was “the long‑term way to get to and from the moon and to Mars with great frequency.”

Congress — and Trump, if he decides to sign the bill into law — have decided to press ahead. Around $4.1 billion of the $10 billion total added to the document will go toward additional SLS rockets for Artemis missions 4 and 5. Meanwhile, around $2.6 billion will go toward completion of the Gateway station.

Notably, the president’s fiscal year budget request for NASA submitted in May proposed to “phase out the Space Launch System and Orion spacecraft after the Artemis III mission is complete.” This new funding flies in the face of that proposal, which was submitted before Musk and Trump’s public fallout in June.

The new funding includes $700 million for a new Mars Telecommunications Orbiter, $1.25 billion for additional operation of the International Space Station, and $325 million to SpaceX for the development of a spacecraft to de-orbit the ISS at the end of the decade. (The total award for that de-orbit spacecraft is $843 million.)