Three deals are slated to hit the investment-grade primary market on Monday as US markets calm, with US stocks mixed in the early session.
Trade issues with China and Mexico, the catalysts behind market volatility and stock sell offs in the month of May, remain unresolved. However, there is a sense from some analysts that it will not be prolonged.
Bank of America Merrill Lynch said, “Compared with China we think Mexico should [have] much more incentive to agree to a deal with the US resolving the tariff situation sooner rather than later, due to its smaller size, outsized dependence on the US and relative lack of geopolitical complications.”
“We also expect much more US resistance against tariffs on Mexico,” BALM said. “As such we would be surprised if these new tariffs went into effect.”
Meanwhile, the 10-year US Treasury note hovered around 2.10% this morning and the yield curve remains inverted.
BALM said, “The big story is developing in rates, where the (10-year Treasury) yield has dropped by over 100bps since late October, and this move now counts as the seventh-largest over the past 20 years measured on a trailing seven-month basis.”
HIGH GRADE
At least three issuers planned to dip their toes into the primary as the market looks to rebound from a rocky May
Energy company Public Service Enterprise Group plans a US$750m no grow bond; Chicago-based community bank Wintrust Financial is out with a 10-year note; and consumer hardware store Home Depot announced a new 10-year and a tap of its 3.9% 2047.
Tariffs and trade continue to inject volatility into the market.
Secondary credit spreads were moving wider in early trading Tuesday morning with the 10-year Treasury curve trading at 2.114%.
Despite the recent volatility, investors are expecting a sizable US$10bn deal to come as early as this week.
One of the most likely candidates is Danaher, which is looking the fund it US$21.4bn acquisition of General Electric’s biopharma business. However, much of the funding could wind up in the euro market, according to BAML research.
There were also a string of M&A announcements over the weekend and into Monday.
Blackstone Group is purchasing the US industrial warehouse properties from Singapore-based logistics provider GLP for US$18.7bn. Blackstone owns Refinitiv, the parent company of IFR.
Additionally, consolidation continues to shake up the semiconductor sector as German chip maker Infineon announced a US$9.4bn acquisition of US rival Cypress Semiconductor.
HIGH YIELD
High-yield issuers continue to face down market volatility with Alaskan communications provider GCI readying pricing on a deal today and food delivery service Grubhub announcing a bond.
GCI has announced a US$300m five-year non-call two as it seeks to refinance its 6.75% senior unsecured notes due 2021 with proceeds and cash on hand.
Following the deal, leverage is expected to stand at 6.5x, according to an investor presentation. GCI’s corporate rating is B2/B-, while its senior unsecured ratings are B3/B,
Neiman Marcus has also announced that 91.6% of its cash pay notes and 91.3% of its existing PIKE toggle notes, or about US$1.477bn in aggregate principal, were validly tendered in its exchange.
Elsewhere, Petsmart 7.125% 2023s got a lift after its online pet food retailer announced its intention to raise US$790m through the sale of 41.6m shares, 87% of which will take the form of a secondary offering.
Those bonds were trading 91.50 after changing hands on Friday at around 90.30, according to Market data.
STRUCTURED FINANCE
A pair of ABS deals were announced Monday, the first of a potential US$4.8bn of ABS to come this week.
Verizon announced a US$1.12bn device payment plan securitization, VZOT 2019-B, its third publicly registered deal.
MUG is structuring the deal and Bank of America Merrill Lynch and TAD as joint bookrunner.
GM Financial also announced its US$800m prime auto loan ABS, AMBARY 2019-2.
Barclays, BNP, Goldman Sachs and Wells Fargo are joint bookrunner on the deal, which is expected to be priced on Monday or Tuesday.
Analysts at Bank of America Merrill Lynch said on Monday that market conditions in May looked similar to November last year, which preceded a meltdown in credit markets in December.
Conditions could worsen from here, they said.
“Securitized products credit spreads have been relatively stable in the context of corporate spread widening,” the analysts wrote. “This too is a replay of the late 2018 performance. We expect that will continue, although that does not mean (securitized product) spreads will not widen.
LATAM
LatAm syndicate desks are off to a quiet start with no issuers expected to price deals in the primary market as of this morning.
Issuers are holding back given the volatile market backdrop, as US Treasuries continue to slip and a trade war with Mexico looms.
Despite the market volatility, three issuers raised US$3bn equivalent last week, with a dual-currency deal from the Dominican Republic and Brazilian fuel distribution company Ultrapar issuing dollar bonds.
“I was very surprised Dominican Republic was done. The backdrop is pretty ugly. I’d think issuers would want to hold back,” said a senior syndicate banker.
One of the issuers standing back potentially due to market concerns is Mexican telecom America Movil, which wrapped up a roads how for a euro-denominated deal on May 24, but has not announced terms.
EQUITIES
Pet retailer Pet Smart this morning launched an up to US$790m spinoff IPO of Chewy, its e-commerce platform.
Morgan Stanley, JP Morgan and Allen are marketing a 41.9m shares at US$17-$19 each for pricing after the market close June 13.
Pet Smart is selling 36m shares and Chewy the remaining 5.6m shares.
The offering features a shorter-than-normal 90-day lock-up, which would allow Pet Smart to sell more stock later this year.
Fiver, the Israeli freelance firm, also launched its IPO this morning that would allow the company to raise as much as US$105m.
JP Morgan and Citigroup are marketing 5.3m shares at US$18-$20 for pricing on June 12.
There are also a handful of new additions to the IPO backlog.
Thereat, an online platform for selling luxury goods and apparel, filed for a US$100m IPO late Friday.
Credit Suisse, Bank of America Merrill Lynch and UBS are the joint bookrunner.
Koruna Therapeutics, a biotech, filed documents for a US$75m IPO, putting 12 biotech in the IPO backlog. Goldman Sachs, Citigroup and Wells Fargo are joint bookrunner on the US$75m offering.
South Mountain Merger, a special purpose acquisition company, filed documents Friday for a US$200m IPO via sole bookrunner Citigroup.