Two smaller IG offerings are in the market on Thursday, after two of the largest IG deals of the year were digested handily by investors this week.
Despite turmoil in the macro arena, with trade talks between the US and China struggling and potential conflict areas in the Middle East, the US corporate bond market is holding up, with investors still bellying up to the primary table.
Five deals totaling US$22.050bn were priced on Wednesday, pushing weekly supply to US$44.500bn and monthly volume to US$51.200bn. Year-to-date issuance was US$470.593bn, which was behind volume pace for the same period last year, which was US$496.894bn.
Despite some oscillations, credit spreads remain tighter for the year. Year-to-date the average IG spread is 39bp tighter and the average HY spread is 146bp tighter.
HIGH GRADE
The primary market is taking somewhat of a pause to digest US$44bn of new debt this week coming mostly from the two largest bonds of the year in back-to-back M&A deals from Bristol-Myers Squibb and IBM.
Both deals priced successfully but the book build was slower and less robust for tech company IBM, which was coming on the tails of drugmaker Bristol-Myers.
One banker said they were already talking to issuers on Wednesday who decided they will wait to announce deals until next week noting that the market was over saturated.
Still, two borrowers - O’Reilly Automotive and Motorola Solutions Inc - announced new US$500m 10-year notes from each, which are expected to price today.
Bristol-Myers bonds continue to move tighter in the secondary but IBM bonds are widening by as much as 5bp in early trading Thursday.
Separately, Chevron said it will not make a counter offer to Occidental’s bid for the acquisition of Anadarko.
Occidental had earlier upped its bid to a 78% cash offer for the US$57bn acquisition, which means it will likely have to come to the bond market to finance the transaction.
HIGH YIELD
It’s another busy day for refinancings in the high-yield primary with some of the best-known names coming to market, including Bausch Health (formerly Valeant), CCO Holdings (Charter Communications), conglomerate Griffon and industrial Williams Scotsman that are all expected to clear Thursday.
Others such as Vistajet Malta is also looking to cross the line by the end of the week.
“The market has been able to absorb the supply that has come,” Ken Monaghan, co-director of high-yield at Amundi Pioneer.
“Given the weakness we saw in equities, high yield has fared fairly well. A fair amount was Double B, and for refinancing, and the transactions that were not in that category were well telegraphed in advance.”
Indeed, JP Morgan is expecting only a modest US$450m outflow from US high-yield funds for the week ended May 8 when Lipper reports later today.
STRUCTURED FINANCE
No new deals were priced in the structured finance market on Wednesday but the pipeline is robust, particularly for ABS and CMBS markets.
The ABS market is again dominated by auto issuers. Three subprime deals have been mandated, by Flagship Credit Acceptance, Santander Consumer USA and United Auto Credit. The deals are all expected to be launched next week.
And on Thursday, Daimler mandated JP Morgan, BNP Paribas and MUFG on a new US$750m prime auto floorplan transaction, Mercedes-Benz Master Owner Trust (MBMOT) 2019-A and 2019-B. The deal is also expected to be launched next week, and has the potential to be upsized according to leads.
In the CMBS market, investment management firm DoubleLine has filed for a potential CLO transaction backed by commercial real estate.
The deal, Grand Avenue CRE 2019-FL1, would be backed by 28 floating rate commercial real estate mortgages, according to the 15G form filed with the Securities Exchange Commission.
Arbor Realty has also filed a 15G for a new CRE CLO. The two deals follow LoanCore Capital which priced a US$1.057bn CRE CLO on Tuesday, pricing the senior tranche at 113bp over one month Libor.
LATAM
A bond to finance a Paraguayan highway is the only deal expected to price in a rougher day for the broader markets as concerns over US/China trade deal weigh on sentiment.
The borrower - Bioceanico Sovereign Certificate Limited - set initial price thoughts on Wednesday at 5.75% area on a US$732.2m 15.1-year bond with an 8.9 year average life.
“It is a decent yield in a country that people think is going toward investment grade eventually,” said a banker away from the deal.
At 5.75%, the deal is coming about 160bp over Paraguay’s sovereign curve, where the existing 2027s have been trading at a yield of around 4.15%, according to Refinitiv data.
That is a little over the 150bp spread typically seen on similar structures priced by Peruvian issuers, noted another banker.
Elsewhere, Gold Fields, which has operations in Peru and Chile, announced a cash tender to buy up to US$250m of its 4.875% notes due 2020.
This comes after the global gold producer raised US$1bn yesterday through the issuance of a US$500m 2029 and a US$500m 2024.
EQUITIES
Uber Technologies is taking a conservative approach toward its IPO with underwriters guiding investors toward likely pricing below the midpoint of price talk, according to bankers working on the deal.
The messaging comes after Morgan Stanley and Goldman Sachs, along with four additional bookrunners, closed bookbuilding at 12:00pm Wednesday and ahead of pricing after the market close today.
Uber had marketed 180m shares at US$46-$50 apiece, valuing it at roughly US$86bn at the midpoint of that talk.
One significant point of concern is the large overhang of potential selling from investors that have invested in privately - by some estimates, Uber has raised US$20bn privately.
“It’s essentially a follow-on,” said one of the bankers. “We hear all kinds of estimates, from $2bn to $20bn.”
Uber’s IPO is structured with a 180-day lock-up, but the bulk of private-round investors are subject to a less stringent market standoff agreement.
“Theoretically, we could sell,” said one hedge fund manager, who invested privately. “We certainly invested at much lower valuation.
“It would feel a little immoral.”
The poor performance of rival Lyft, which tumbled another 10.8% Wednesday following Q1 earnings to US$52.91 (from US$72.00 IPO pricing, has heightened the sense of caution in the Uber camp, the sources told IFR.
There are seven companies debuting on US stock exchanges today.
Biotech will dominate attention, at least in number, with four of the deals priced last night out of the sector.
Cortexyme (US$75m), NextCure (US$75m) and Milestone Therapeutics (US$82.5m) each secured mid-point pricing on their IPOs, and Axcella Health (US$71m) low-end pricing.
Applied Therapeutics, another biotech, has extended marketing of its IPO. Citigroup, Cowen and UBS, which had marketed 4m shares at US$14-$16, are now marketing the deal on a “day-to-day” basis.
HeadHunter Group, the Cyprus-based Russian online recruiter, saw its backers cash out US$220m on an all-secondary IPO at US$13.50, the top-end of US$11.00–$13.50 marketing range.
South Plains Financial, a West Texan commercial bank, took low-end US$17.50 (US$17.50–$19.50) pricing on its 3.4m-share IPO, though allocations were high-quality.
Mayville Engineering, an employee-owned maker of truck parts, raised US$106m on its IPO of 6.3m shares at US$17.00, two dollars below the US$19–$21 marketing range.