IFR SNAPSHOT-At least five IG offerings expected in primary

8 min read
EMEA
John J. Doran

At least five investment grade deals are expected to price in primary on Tuesday, with two FIGs leading the small parade.

This supply adds to healthy flow started on Monday when seven deals were priced, totaling US$7.850bn.

Monthly issuance stands at US$74.425bn and 2019 year-to-date issuance adds up to US$285.893bn.

Speaking of supply, CreditSights did an analysis of supply so far this year. “An accommodative Fed and a rally in spreads has created a positive environment for issuers,” it said in a note.

By rating so far in 2019, issuers with an effective BBB rating have issued 43% of the debt as compared to 45% last year, while A-rated borrowers have issued 44% vs 42% in 2018, CreditSights said.

“New issues from the energy sector have tightened the most within the weeks following issuance, while TMT (technology media telecoms) has lagged,” the research company said.

“BBB-rated bonds have seen a greater degree of tightening versus A-rated and AA-rated bonds.”

HIGH GRADE

Issuance this week is dominated by financials, which make up four of the five borrowers marketing deals Tuesday morning.

Chief among them is Finland’s Nordea Bank, with a US-dollar denominated perpetual non-call March 2026 Additional Tier 1 note.

The Yankee issuance follows on an Additional Tier 1 non-call five-year issue from BNP Paribas the day prior as well as a similar issuance from Credit Agricole in late February.

Each of the AT1 bonds started at initial price thoughts of around 7% but have tightened significantly in price progression as well as in the secondary, where Credit Agricole holds the number to beat trading around 6.6%.

Other issuers in the market include the Royal Bank of Scotland Group, lessor of residential buildings Essex Portfolio and the financial arm of Irish industrials manufacturer Ingersoll-Rand Plc. Canada-based nutrient producer Nutrien is also in the market with a two-parter.

In the secondary market, credits are generally moving tighter with the exception of German car maker Volkswagen, which is being sued, along with its former CEO Martin Winterkorn, by the Securities and Exchange Commission for defrauding US investors during the emissions scandal.

The company’s 4% 2021 issuance is among the most traded on the day moving 53bp wider to 150bp over Treasuries, according to Market Axess data.

HIGH YIELD

The debt financing for Brookfield Business Partners’ buyout of Johnson Controls’ Power Solutions business was priced on Monday, with all three bond tranches coming inside of initial price talk.

Just one new deal has been announced so far this week, with communications firm Viasat announcing a new US$500m senior secured bond due 2027. That joins offerings from Kosmos Energy, ADT and Neon Holdings which are on roadshows and due to be priced later this week.

Excluding refinancing activity, net issuance of US$23.4bn in the year-to-date is outpacing last year’s figures, according to JP Morgan analysts.

Secured bonds account for a much higher proportion of activity compared with previous years - already totaling around half of the US$36.6bn of secured bonds issued in the whole of 2018, according to JP Morgan.

Deal activity is also skewed heavily towards higher rated borrowers, with only 8.6% of issuance coming from lower rated (split B or CCC) credits, the lowest since 2002, according to the bank.

STRUCTURED FINANCE

A slew of new deals are being marketed across structured finance markets this week with around eight ABS transactions, five CMBS and six RMBS deals in various stages of marketing.

Element Financial announced price guidance for its US$400m fleet lease ABS deal on Tuesday. The Triple-A rated US$370m A1 tranche, which has a 1.95 year weighted average life, has guidance of 42bp-45bp over swaps.

Price guidance was also circulated for Freddie Mac’s latest multifamily CMBS deal. The US$98m A-CA tranche and the US$168m A-US tranche have been indicated in the 55bp area and 60bp area over interpolated swaps, respectively.

Starwood Mortgage Capital announced a new US$340m RMBS deal on Monday, STAR 2019-IMC1, which is backed by a range of prime and non-prime mortgage loans. Non-QM loans make up about 52.7% of the pool, with the remaining 47.3% being exempt from the qualified mortgage (QM) rules because they are investor property loans, according to S&P.

Credit Suisse, Deutsche Bank and Performance Trust Capital Partners are the underwriters on the transaction.

LATAM

It looks a slow day in the LatAm primary markets following a US$550m 60-year non-call 5.25 year from Chile’s AES Gener on Monday.

The hybrid deal, which receives equity treatment from the rating agencies, was priced at 99.948 to yield 7.125%, providing a decent enough pick-up over the fair value of around 7.40% calculated by one analyst.

Proceeds from the deal went to refinance a similarly structured hybrid bond before it stepped up to a more expensive rate. The bond was trading up this morning at around 100.90, according to MarketAxess data.

With the Federal Reserve starting its FOMC meeting today, it appears that LatAm issuers are holding back, though next week could see more activity, one banker said.

Bonds issued by Petrobras, meanwhile, were inching higher as well after the Brazilian oil company announced it would prepay R$7bn in export credit notes with Banco do Brasil, according to Lucror Analytics.

This comes after Andrea Almeida, a former executive at mining company Vale, was appointed as Petrobras’s new CFO and IR director.

EQUITIES

A total 12 deals launched last night targeting some US$3.8bn, including nearly $1.6bn of capital committed across five sponsor-related selldowns.

In the largest sponsor transaction, Goldman Sachs cut a US$776m check to TPG for all of the PE firm’s remaining 12.8% stake in multi-line insurer Assurant.

Goldman this morning reoffered the 7.9m shares purchased at US$98.70, a 1% discount to the US$99.70 last sale.

The shares sold are a portion of the 10.1m shares TPG received from its sale last May of The Warranty Group to Assurant.

Cactus, a pressure pumper, marked the reemergence of oilfield services with a roughly US$308m secondary selldown.

Citigroup and Credit Suisse reoffered 18m Cactus shares at US$36.25, a 3.9% discount on what is the equivalent of 45-days’ trading volume.

More predictably, Apollo Global returned with a US$102m sale of PlayAGS, the gambling machine maker it took public last January. The sale of 4m shares, already the third since the IPO, reduces Apollo’s stake to 22.3%.

Ahead of the two-day Fed meeting, Two Harbors Investment became the latest mortgage REIT to raise primary capital overnight with a US$249m block sale.

Yext rounded out the overnight activity with a US$131.2m secondary block offering via Goldman Sachs.

In one of the more impactful trades of the week, AXA Equitable is repurchasing 30m shares as part of a larger 40m-share secondary sale AXA SA.

The AXA Equitable sale, scheduled to price after the market close Wednesday, would reduce the French parent’s stake to 49.5%.