IFR SNAPSHOT-After supply deluge IG market remains steady

7 min read
John J. Doran

So far this week we have had 11 deals priced in the IG primary, including the well-received US$12bn Saudi Aramco offering.

We slow down a bit today, with only one deal slated for the IG primary. Public Storage announced a US$400m 10-year senior unsecured note offering.

On Tuesday four deals totaling US$15.25bn - including Aramco - were priced, bringing weekly issuance to US$20.15bn and monthly issuance to US$43.7bn, according to IFR data. Year-to-date issuance is now US$371.443bn. On Monday there were seven deals.

All those deals have not dampened the secondary IG market, which is stable and moving higher for the most part.

BAML said in a report: “High-grade credit spreads rallied despite $15.25bn of new issue supply today, significantly outperforming stocks (SP 500 down 0.61%) and rates (10-year Treasury yield declined 2bps).”

“This week’s new issues are trading 3.6bp tighter on average from their pricing spreads.”

The EM bond market expects to be busy today with three LatAm deals to price. And the high-yield market is expected to be quiet.

HIGH GRADE

California-based self-storage company Public Storage announced an offering to help fund investments in its facilities.

New IG issue supply is set to slow as earnings season kicks in and blackouts convene.

JP Morgan and Wells Fargo are the first to report at week’s end. And while both banks could tap the bond market immediately, they showed more of a willingness to wait before selling a bond during the last earnings season, one banker told IFR.

AT&T denied reports that it is or ever was in discussions to sell HBO Europe in order to help pay down its US$170bn debt load.

HBO was the center-piece of AT&T’s US$80bn deal for Time Warner last year, but the relationship has been fraught causing several HBO executives to depart.

HIGH YIELD

It looks like a quiet day for the high-yield primary on Wednesday.

In secondary, the unsecured bonds from Staples are outperforming the secured bonds which is a bit of a surprise given that investors have been showing a preference for secured debt of late.

The US$1bn 10.75% unsecureds are trading at 100.188, while the US$2bn 7.5% 2026 secureds are trading at 99.563, according to MarketAxess. nL1N21R1CY

The slight underperformance of the secured bond may have been because it was almost tripled in size from US$750m to US$2bn, said a trader.

“Because of that upsize, investors may have gotten better allocations than they expected,” said the trader.

And now that the deal is out of the way, the pipeline is pretty small.

“Outside of Staples, we’ve really not seen much supply. There has been a drop off in the last few weeks. We’re now more likely to see companies terming out revolvers and refinancing,” said the trader. “The big M&A deals are done.”

STRUCTURED FINANCE

A raft of new deals were priced in the structured finance market on Tuesday with equipment and auto loan transactions taking center stage.

General Motors priced a US$1.23bn prime auto loan deal at EDSF+13bp, at the tight end of guidance, while CarMax priced a US$1.365bn prime auto deal at IS+32bp, 3bp inside the tight end of guidance. That deal was also increased from an initial size of US$1.15bn.

Three equipment finance deals from Daimler, Dell Financial Services and Commercial Credit Group totaling US$2.46bn were also sold.

Amid the deluge of ABS paper, two RMBS deals were also priced - a US$406m performing and re-performing loan deal and a new US$857m credit risk transfer deal from Fannie Mae.

More equipment and auto paper is being lined up to price on Wednesday. Santander Consumer USA is expected to bring a US$850m auto lease deal, while Ascentium Capital is due to price a US$355.4m equipment deal.

The firm provides small ticket equipment financing in a range of industries such as medical offices, hotels and freight trucking.

LATAM

At least three LatAm issuers are expected to hit the market on Wednesday after wrapping up roadshow this week.

An eclectic group of deals are on offer today, namely a Euroclearable Treasury note from Panama, a sol-denominated issue from Peru’s Alicorp and a two-parter from Brazilian steel company CSN.

Alicorp has set initial price thoughts of 7.125% area on a sol-denominated eight-year bond with an average life of seven years, following a similar trade from Telefonica del Peru last week.

Panama is also testing the waters with a seven-year Treasury note at IPTs of US Treasuries plus 150bp area, while CSN has set IPTs of 7.375% area on a tap of its 2023s and at very low 8%s on a seven-year non-call three.

While global growth concerns are back on the table, all three deals are coming on what appears to be an up day for the EM corporate bond space.

Petrobras bonds are leading the way and are up between 25 to 80 cents across its dollar curve amid news that it is preparing a local bond issue.

EQUITIES

Enterprise software companies are in high demand and that appeal is extending to IPOs.

PagerDuty, whose software helps businesses collaborate, last night hiked the asking price on its IPO to US$21-$23, from US$19-$21, while maintaining the offering size at 9.1m shares.

Morgan Stanley, JP Morgan, RBC Capital Markets and Allen & Co closed books at 4:00pm yesterday, ahead of pricing this evening for a Thursday debut, after telling investors that they were well oversubscribed.

Jumia, the Africa-focused e-commerce platform, also closed books on its up to US$209m IPO yesterday afternoon that is supported by a concurrent €50m (US$55m) investment by Mastercard via a private placement.

Morgan Stanley, Citigroup, Berenberg and RBC Capital Markets are oversubscribed on Jumia’s proposed sale of 13.5m new ADSs that are being marketed at US$13–$16.

Cybersecurity software company Tufin Software Technologies leads an expected wave of tech IPOs coming from Israel this year with an up to US$108m IPO due to price after the market close today.

JP Morgan, Barclays and Jefferies are oversubscribed for 7.7m shares and are targeting a US$12-$14 range.