A mix of issuers are crowding into the IG market Monday, with at least eight deals expected to price.
A number of FIGs, including Deutsche Bank and Citibank, and three utilities are among the issuers. These deals are expected to feed into heavier volume for the week than of late, estimated to reach US$30bn.
And don’t forget Altria, which started its financing campaign in Europe this morning, tapping the market for €4.25bn. It is expected to price the US dollar portion of its bond offering either Tuesday or Wednesday.
As for the state of the market, BAML said in a report that the weakness in credit spreads started (last) Wednesday, “following an exceptional twenty-two business day bull-run, can be explained by both macro and micro.”
“While macro is difficult to predict, the micro should improve (this) week. That leaves us overweight and bullish on spreads.”
As for a boost from investors, BAML noted that “large parts of the crucial Asian bid for US corporate bonds were sidelined due to holidays around Chinese New Year” last week.
“We can predict these investors will be back on Monday, which however is a holiday in Japan. Then on Tuesday everybody is back.”
HIGH GRADE
Western railroad company Union Pacific is one of the largest deals coming to market on Monday, with a four-part bond to execute on its “Unified 2020 Plan,” which hopes to increase the efficiency of existing trains and rail lines.
Four financial institutions are in the market including the financing arm of French oil and gas company Total Capital International, Citibank, Citizens Bank and Deutsche Bank, which is marketing its first senior non-preferred dollar deal since October, according to IFR data. Last week, Deutsche paid up to sell a similar trade in euros and sterling.
Other issuers include Illinois electric utility company Commonwealth Edison, candy and snack producer Mondelez International, and Detroit-based energy company DTE Electric which is selling a US-dollar green bond.
HIGH YIELD
Two triple C rated deals are on the high yield calendar this week after seven issuers sold a combined US$7.17bn last week.
Online education software firm Ascend Learning is marketing a US$300m 2025 senior unsecured note that is expected to price on Tuesday.
The deal has a 5.5NC1.5 structure with Caa2/CCC+ ratings. The company, owned by private equity firms Blackstone and Canada Pension Plan Investment Board, is raising the cash to pay a dividend to its shareholders. Barclays is leading the sale.
Getty Images is looking to price a Caa2/CCC+ rated US$400m 8NC3 senior unsecured note as the company comes out of private equity ownership. The firm is refinancing its capital structure in conjunction with the Getty family’s acquisition of a controlling stake in the company from Carlyle Group.
JP Morgan is left lead on the deal, which is being marketed with 10.5% price talk and is expected to close on Wednesday.
The images firm is also marketing a US$1.445bn equivalent seven-year term loan B in dollars and euros which is due to close on February 12, according to LPC. A US$500m perpetual PIK offering is also being marketed.
Engineering and manufacturing firm Arconic, meanwhile, said on Friday it planned to split into two businesses over the next 9-15 months following the collapse of a potential leveraged buyout by Apollo last month.
The company, whose senior unsecured bonds have split Ba2/BBB- ratings, will split into an aerospace components unit and an aluminum sheet processing business.
Details on where the company’s US$6.3bn of debt would be held and ratings and leverage estimates have yet to be disclosed, said CreditSights analysts.
STRUCTURED FINANCE
The primary ABS market has another busy week on tap for supply and analysts think spreads will grind tighter even with the increase in issuance.
In autos, Ally, Credit Acceptance, General Motors, Hyundai, Santander and Westlake have a mix of prime and sub-prime auto deals on deck for pricing.
Over the past four weeks, three-year Triple A prime auto paper tightened about 11bp in secondary trading, whereas Triple A sub-prime auto paper has narrowed about 13bp, according to Wells Fargo.
“We expect the strong demand cascading over from secondary in short ABS should help push spreads in narrower on the full pipeline of deals slated for the next two weeks,” JP Morgan analysts wrote in their weekly note.
And it won’t just be auto paper on tap this week.
Navient this morning also announced a US$647m deal of refinanced student loans from startup Earnest.
Retail card company World Financial Network also announced a US$322m deal.
LATAM
No new deals were announced in the LatAm primary market Monday, but conditions are more positive for issuers following four straight weeks of inflows into the asset class, according to Lipper data.
There’s still no sight of a deal from Brazil, which several bankers have been speculating about over the past few days.
“I fully expect Brazil to come, but they are not usually a Monday mover. They typically wait to see how the week’s first deals go,” said one syndicate banker.
“But this is a good market for them to access. We’ve had good inflows into the asset class, and the levels they could achieve are attractive so they are a serious candidate.”
EQUITIES
US equity capital markets are still struggling to get back to normal, with the fourth quarter earnings season keeping many prospective issuers on the sidelines and the looming threat of a second US government shutdown curbing IPO launches.
Overall, there are five companies seeking to raise nearly US$900m from IPOs this week ahead of another possible US government shutdown this Friday.
Weekend reports suggested discussions between Republics and Democrats on a compromise over border wall funding were again at an impasse.
Another shutdown would likely force the SEC to again cease reviewing IPO filings and declaring them effective, essentially shutting down the IPO market.
Companies that wish to complete first-time follow-ons (which require SEC approval) look to get ahead of the shutdown by launching and pricing deals before Friday.
In the largest IPO this week, Virgin Trains USA is looking to raise more than US$500m to help fund its expansion.
The Fortress Investment-backed plans to use proceeds to extend its Miami to West Palm Beach passenger rail line to Orlando and Tampa before it casts its eye further afield to a Las Vegas to California line.
Barclays, JP Morgan and Morgan Stanley are marketing 28.3m new shares at US$17-$19 each for pricing tomorrow night, though there is talk that demand is building well below range.
The balance of this week’s calendar has three healthcare deals pricing on Wednesday night - Avedro, Cibus and TCR2 Therapeutics - and Stealth Biotherapeutics pricing on Thursday.
Just 15 or so months after it took lab supplier VWR private in a US$6.6bn leveraged buyout, New Mountain Capital/Goldman Sachs-backed Avantor filed documents for an IPO that could raise more than US$1bn.
Goldman Sachs and JP Morgan are joint bookrunners.
The company anticipates using proceeds to reduce nearly US$7bn of total debt on its balance sheet, much of it due to the VWR buyout.