Five IG issuers are expected to price offerings in the primary on Thursday.
Stock and bond markets have toned down their volatile gyrations, leaving open a door for some issuers to come through today.
Yesterday was a different story.
Where least four IG issuers stood down on Wednesday due to market turmoil and the reverberations from trade and tariff tensions, a lone investment-grade South Korean company stood up.
Oil refiner GS Caltex sold a US$300m offering, pushing weekly issuance in a holiday-shortened week to US$3.300bn and monthly IG issuance at US$101.800bn.
As for current conditions, in a report Bank of America Merrill Lynch said, “While we also think spreads are biased tighter over the next 1-2 months, obviously there is plenty of scope for volatility based on US-China trade related headlines and likely weakness in data.”
“IG credit should perform well in our baseline scenario of a trade deal, and even without a deal, following the initial sell-off,” BAML said.
“But, of course, volatility has increased materially.”
HIGH GRADE
At least five issuers are expected in the market today.
The borrowers include International Paper, Entergy Mississippi and Southern California Gas, Bank of New York Mellon, and Flex Limited.
Overall bond issuance has largely dropped off as borrowers seek more clarity around the pricing they will receive in this current market.
“It causes some indigestion and reduces the certainty you can find an ending point on price,” one syndicate told IFR.
“Any reduction in certainty makes people stand down and be more analytical.”
There is a growing sense that trade discussions could continue for months if not years, depending on how long it would take for either side to break the stalemate.
“What happened in May was a complete surprise to us,” BAML said.
“We went from expecting a trade deal to unleash global growth, to now fearing the lack of a deal increasingly weighs on growth.”
HIGH YIELD
Go Daddy looks to be the next issuer off the block as markets show some signs of calm on Thursday.
The web-hosting provider has announced a US$600m 8.5-year non-call three, rated B1/B+, with whispers in the mid 5% area.
That seemed tight to some given CNO Financial, rated Baa3/BB+/BB+, came yesterday with a US$500m 10-year at a yield of 5.25%.
Yet while the deal is a debut for the company, investors are familiar with the credit from its forays in the loan market and think Go Daddy is a solid name.
“They have loans in the market and their stock has done well and they generate tons of free cash flow,” said one account.
Luxury retail Neiman Marcus is also expected to put its US$550m Triple C rated junk bond deal to bed today after extending the deadline on a concurrent debt exchange.
The bond has the safety net of a backstop - some of the firm’s holders of existing unsecured bonds have committed to buy US$450m of the new debt - if it is not otherwise sold.
The company’s private equity sponsors Ares and Canadian public pension fund CPPIB are providing a backstop for the remaining US$100m.
STRUCTURED FINANCE
ABS issuance has been winding down for the shortened holiday week with only Kubota Credit and Sunrun still waiting to price securitizations.
Kubota rolled out guidance yesterday on its US$800m equipment ABS. Its biggest 1.49-year US$285.5m Triple A class was floated in the 27bp-30bp range over EDSF.
The credit arm provides financing on Kubota farm and construction equipment. It has not been a prolific ABS issuer in the past and last priced similar bonds at a lower 20bp spread over EDSF in April 2018.
Residential solar company Sunrun expects to price its one-tranche US$204m Single A- trade today.
It last sold ABS in December.
Even as new ABS issuance for May tapers off, the pipeline has been building for June.
This morning Ally Financial, Bank of the West and Verizon started premarketing new ABS. Sallie Mae, Massage Envy and Welk Resorts also have deals in the wings.
LATAM
Brazil’s Ultrapar could be next to take a run at the market after the Dominican Republic raised US$2.5bn equivalent yesterday despite market volatility.
The gas distributor finished roadshowing a dollar bond with an intermediate maturity yesterday, but as of early morning had yet to announce any terms.
Markets were looking a little more stable but concerns over the US China trade war and any subsequent impact on global growth continues to hang over the market.
News that Brazil’s economy shrank in the first quarter also doesn’t necessarily helped sentiment surrounding that country.
Even so, the Dominican Republic’s new 30-year bond was trading higher in the secondary market at around 99.55 after generating over US$4bn in demand.
At a final spread of 380bp, one banker calculated a new issue concession of anywhere between 5bp-10bp on the dollar tranche given the existing 2048s were trading at around T+370bp.
The sovereign also raised US$1bn equivalent through a seven-year local currency deal, which priced at 9.75%, flat to IPTs.
EQUITIES
Twilio, the cloud-collaboration software developer, is looking to take advantage of investor goodwill with a $750m opportunistic equity raise.
JP Morgan and Goldman Sachs are marketing Twilio’s all-primary offering throughout today’s session for pricing after the market close.
Twilio shares closed yesterday’s session at US$129.17, up nearly 45% for the year and valuing the company at US$16.3bn.
Twilio plans to use proceeds for general corporate purposes, including potential acquisitions. The equity raise will give it some US$1.7bn of cash.
Amicus Therapeutics and Myovant Sciences are also marketing primary raises, sized at US$150m and US$100m, throughout today’s session.
Amicus recently extended a collaboration with University of Pennsylvania and Myovant reported positive Phase III data on a drug trial earlier this month.
MFA Financial, a mortgage REIT, secured US$200m from the overnight sale of a five-year CB.
Morgan Stanley, Goldman Sachs, Barclays and Wells Fargo confidentially marketed the deal to investors yesterday, before pricing with a 6.25% coupon and at a 10% fixed conversion and a 99 OID.
InterDigital Wireless, an owner of patents related to wireless communications technologies, raised US$350m from the sale of a five-year CB.
Barclays and Credit Suisse priced the CB at a 2% coupon and 30% conversion premium, the midpoint of 1.75%-2.25% and 27.5%-32.5% price talk.
InterDigital spent a portion of the proceeds to purchase US$221m principal of a 1.5% CB that comes due next March and another US$20m to buy back stock. It also purchased a call-spread to offset stock dilution to share prices above US$109.43, a 75% premium to reference on pricing the CB.