Thursday, 22 August 2019

IFR SNAPSHOT-After Tuesday deluge, IG primary set to repeat

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Call it copycat Wednesday: the IG primary is set to welcome six offerings, the same number as Tuesday

And what a difference a day makes.

Markets on Tuesday retraced to various degrees the sharp moves made on Monday, when equities fell sharply and corporate spreads widened on trade turmoil between US and China.

However, equities are in sharp decline again this morning.

After an idle Monday, on Tuesday the IG primary came alive with six deals totaling US$10.150bn, pushing May issuance to US$62.500bn, according to IFR data.

Year-to-date IG issuance now stands at US$481.893bn, well behind the US$536.450bn sold during the same period in 2018, according to IFR.

Meanwhile, in the secondary, corporate bond spreads on Tuesday saw IG flat to tighter and HY tighter, according to ICE/BAML data.



Six borrowers are in the investment-grade primary Wednesday led by financial issuers.

Those financial issuers are largely going short as HSBC, Citi and American Express are each out with new three-year notes, while Wells Fargo Bank is issuing a two-year non call one.

There is also new issuance from insurance holding company Markel and transportation and supply chain management company Ryder System.

Bonds from Waste Management’s US$4bn Tuesday issuance to fund the acquisition of Advanced Disposal are trading as much as 5bp tighter on the secondary this morning, helping to erase some of the 14bp new issue concession that was offered on the long-dated notes.

Similarly, Fidelity National Information Services (FIS) traded as much as 11bp tighter yesterday, according to MarketAxess data, following the announcement that only US$1bn of the US$11bn in total it sought for the acquisition of Worldpay would come from the US dollar market.

The company priced 5bn in euros, another 1.25bn in sterling and plans to raise the rest through commercial paper.

“The smaller-than-expected US dollar deal size further illustrates just how positive Reverse Yankee supply can be for US dollar spreads,” Bank of America Merrill Lynch Research noted in a report.



High-yield primaries continued to enjoy some momentum on Wednesday as offshore drilling firm Transocean readied a US$500m 2023 bond for pricing today.

Even so, uncertainty over the outcome of the escalating US China trade war continues to hang over the market and Vistajet certainly experienced some bumps along the way.

The jet service company was forced on Tuesday to hike the final yield on its 5NC3 to 11% from whispers of 9% area and tighten covenants to please investors.

The deal, whose call was extended to year three from year two, was upsized a touch in the process to US$550m from US$525m and printed at 98.113 with a 10.50% coupon.

Proceeds are going to refinance an existing term loan issued by XOJet, an on demand business aviation company acquired last year, and a US$300m unsecured bond issued by VistaJet.

Final yields came wider than the US$300m 7.75% 5NC2 that was issued in 2015 at a yield of 8%.

“It is a story that has been improving since it first came to market in 2015,” said one investor.

“Back then they didn’t own a portfolio of jets. Now the network is complete. Capex going forward should be minimal.”

Even so, it remains unclear what a downturn in global growth might mean for a company like VistaJet, which could see clients cutting expenses during a recession.



A US$400m auto-fleet lease deal from Hertz Fleet Leasing Funding is expected to be priced on Wednesday, with leads RBC and Wells Fargo guiding the senior A-1 notes at 45bp-47bp over one-month Libor.

This follows an active day in the primary market on Tuesday with ABS issuers selling US$2.8bn of bonds.

These included two auto floorplan deals from GM and Hyundai, three subprime auto deals from Flagship Credit Acceptance, Santander Consumer USA and United Auto Credit, and an equipment loan deal from CNH Industrial Capital.

Freddie Mac was able to price the B-2 tranche of a new shelf of mortgage risk transfer bonds on Tuesday at 835bp over one-month Libor, inside price guidance of 850bp-875bp.

The tranche was originally retained in a credit risk transfer deal sold by Freddie Mac in 2018.

The last equivalent tranche, in STACR 2019-DNA2, was sold at 1050bp in March this year.

Two other deals in the RMBS market are at guidance stage - a US$578.75m non-qualifying mortgage deal from Invictus Capital Partners, VERUS 2019-2, and a US$400.8m prime jumbo and conforming mortgage deal from Sequoia Mortgage Trust, SEMT 2019-2.



The Republic of Chile is in the market with a local offering in a Euroclearable format.

IPTs were set at 3.80%, 4.30% and 4.65% for the nation’s 2023s, 2030s and 2050 bonds. Itau, Scotiabank and Santander are working on the deal.

Gran Tierra Energy, with operations in Latin America, is wrapping up its roadshow today and expected to price a 144/Reg S 2027 note Thursday.

Meanwhile in the secondary market, Mexican telcom America Movil’s 2049 notes were among the most heavily traded this morning, trading up by around 20bp.



PIMCO Mortgage Income Trust, the PIMCO-sponsored mortgage REIT, pulled the plug on its US$1bn IPO, citing the ubiquitous “market conditions”.

Notably, this was the second time the fixed-income asset manager has failed to cross the finish line after an earlier effort in 2011.

Credit Suisse, Bank of America Merrill Lynch, Goldman Sachs and Morgan Stanley, the joint bookrunners on the offering, had hoped to place 50m shares at a fixed-price of US$20.00 apiece after the market close today.

PIMCO Mortgage, which was to have to invested in agency-backed real estate mortgages (deeply liquid), was carefully structured, with sponsor PIMCO picking up the tab on underwriting fees and PIMCO-parent Allianz SE investing US$25m on the offering.

In the end, size appears to have been an issue. PIMCO Mortgage would have been the largest-ever mortgage REIT start-up, and as of early Monday it was only “north of half-covered” to the US$1bn funding target.

In another difficult situation, post-office REIT Postal Realty Trust took in a lower-than-expected US$76.5m on an IPO that was both downsized and came below the valuation targeted.

Stifel, Janney Montgomery Scott and BMO Capital Markets placed 4.5m shares last night at US$17.00 apiece, well below the US$19-$21 range targeted on an offering sized at 5m shares. They extended marketing from the original pricing timetable last Thursday.

Stock market stability encouraged a pair of secondary selldowns in Virtu Financial and Hostess Brands.

High frequency trading firm Virtu Financial brought a US$202.5m block trade on behalf of its founder Vincent Viola.

Morgan Stanley and Sandler O’Neill reoffered 9m shares this morning at US$22.50, the low end of a SU$22.50-$23.00 marketing range but an increase from the 7m shares they had committed to purchase.

JP Morgan offloaded a purchase of 8m Hostess shares at SU$13.40, also the low end of a US$13.40-$13.60 marketing range.

C. Dean Metropoulos, which backed the Gores Holdings SPAC that acquired the snack-foods maker in 2015, reduced its stake to 36.4%.



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