Campbell Soup struggled to build demand for its seven-part bond Monday, as investors looked to be fighting their corner against borrowers in a market that has seen an unprecedented bull run.
Eleven companies put new deals on the table Monday, but after more than US$55bn of issuance last week, syndicates were finding it harder to move the pricing needle much - or at all.
Campbell (Baa2/BBB) did not tighten levels from IPTs to launch on six of its seven tranches, and its order book was a modest US$10.6bn at midday for what emerged as a US$5.3bn deal.
“This is not something we’re used to seeing,” said one syndicate banker away from the deal whose active bookrunners were Barclays, Citigroup, Credit Suisse and JP Morgan.
Investors, force-fed seven consecutive years of record investment-grade supply, may be showing some backbone versus issuers who have largely had things their way.
The buyside may have also been feeling emboldened after pocketing juicy new-issue premiums on the US$40bn M&A bond from CVS last week - and pushing back harder than earlier this year.
And to some, Campbell’s initial levels just felt too aggressive.
“CVS repriced things,” the investor said. “Campbell’s 10-year came to the market (45bp) inside of where CVS was talked. That doesn’t make a lot of sense.”
And at a time when US food tastes have shifted away from the familiar mass-market brands of yore, Campbell’s US$4.87bn purchase of salty snacks company Snyder’s-Lance set off some alarm bells.
“Investors are approaching M&A trades differently,” said one debt capital markets banker.
“They are thinking more about whether the deals they are financing are the last M&A deals, or if there will be more.”
Yet many of the session’s other trades unusually also went right to the number at guidance, including offerings from WGL Holdings and Fifth Third Bancorp.
“Deals have been a bit slower to bookbuild,” the banker said. “CVS has put in a mixed performance. My suspicion is that is the reason why - plus some deals started a little tight.”
And with rates inching higher worldwide, he said, “foreign demand for US credit is also dissipating.”
NOT GLOOMY YET
But plenty of others in the market remain upbeat on high grade, insisting that both spread and rates moves have been modest - meaning technicals don’t seem too problematic.
“What’s wrong with credit?” Tom Murphy, senior portfolio manager at Columbia Threadneedle, told IFR.
“We’re a long way from the pivot point of companies not being able to pay their debts,” he said.
“If you liked it before, how are you not liking it now? The technicals are worse, but the fundamental underpinnings are better.”
Murphy’s colleague Tim Doubek decried a “yield-to-lunch” mentality that has snaked through the market of late.
According to data from ICE BAML, the average investment-grade bond spread has widened out 6bp over the last 10 trading days.
“People are dealing with the market second-by-second,” Doubek said. “There’s a lot of day-to-day volatility.”
