Whether it is one and done or not, the Fed rate cut and commentary stirred the market pot.
While stocks are trying to crawl back after taking a beating on Wednesday - the Dow fell over 300 points - the corporate bond market is very perky.
Undeterred by Fed fog, the IG primary is back in action after a day off, looking at five deals.
And the high-yield market is juggling four offerings.
Meanwhile, it is the start of a new month.
So we will take a quick look back before peering into the last full month of the summer season.
July’s IG volume totaled US$97.319bn, according to IFR data. That brought year-to-date issuance to US$699.087bn, a 6.9% decline in issuance from the US$750.698bn sold in the same period in 2018, according to IFR.
BAML said in a research report that it was the slowest January-July pace since 2014.
“Looking ahead, August is seasonally the second slowest month of the year for supply, and this time even shorter than in the past with only two weeks of open market access, assuming more or less closed last two weeks before Labor Day,” BAML said.
BAML noted, however, that the pipeline of pending M&A deals with IG funding implications has increased to US$415bn presently, and there are currently seven large deals.
“Given a relatively stable macro backdrop and the current low interest rate environment, we would not be surprised to see supply to fund M&A as well as CP/short-term debt repayment pick up in August,” BAML said in its report.
“As a result, we expect US$70 - US$100bn of supply in August, in line with seasonality as the short time frame gets partially offset by the upside potential from M&A and refinancing trades.”
HIGH GRADE
Occidental Petroleum, Sinopec, Crown Castle and Ryder System are issuing new bonds and American Airlines is out with an EETC pass-through certificate.
Average high-grade bond spreads were stable at 114bp over Treasuries on Wednesday, according to ICE BAML, but Bank of America Merrill Lynch analysts have a bullish outlook for them to tighten from here after yesterday’s rate cut.
The bank said the Fed announcement and US economic conditions are “super supportive” for IG inflows.
JP Morgan analysts warned on Wednesday however that August has historically been a weak month for IG markets as investors prepare for heavy new issuance in September.
Financial names dominated the list of most heavily traded issuers in secondary markets on Thursday, with the rate cut and flat yield curve seen as a potential drag on net interest income.
HIGH YIELD
With the Federal Reverse’s rate decision in the rear view mirror, high-yield issuers renewed their rush to market on Thursday as they look to refinance debt in what remains a low rate environment.
“Companies are doing what they are supposed to do and taking advantage of record low rates and high demand to refinance debt and push out maturities,” said an investor.
Miner Freeport-McMoRan, rated Ba1/BB, is looking to raise US$1.2bn through a two-parter comprising an 8NC3 and a 10NC5 to fund a tender for its 4% 2021s, 3.55% 2022s and 3.875% 2023s.
It also wants to redeem outstanding 6.875% 2023s.
iHeartCommunications, rated B1/BB-, is also trying its hand at refinancing debt, in this case an outstanding term loan, with a US$500m 8NC3 senior secured first lien note.
Use of proceeds are the same for Mattel, which is out with US$250m 8NC3, and Albertsons, which is approaching investors with an US$500m 8.5NC3 bond.
Secondary markets, meanwhile, are putting in a mixed performance after Fed head Jerome Powell failed to commit to the full tightening cycle that the markets had hope for.
Bombardier’s 7.5% 2025s are also taking a hit after the airline manufacturer reported a larger than expected quarterly loss.
Those bonds were down over two points in early trading to change hands at 99.50 this morning.
JP Morgan estimates that inflows to high-yield funds week to date stand at around US$450m.
But that is likely to reverse after ETF withdrawals came in at a hefty US$971m, a number that will fall into next week’s reporting.
STRUCTURED FINANCE
SESAC is out with price guidance on its debut whole business securitization, SESAC 2019-1.
Guggenheim has set guidance at 5.5% area on the seven-year notes for the music royalty business. The deal is expected to price on Friday morning.
Next week’s pipeline is filling up - Toyota has mandated JP Morgan, Credit Agricole and Mizuho for a new prime auto loan ABS.
And Progress Residential has mandated Morgan Stanley, Barclays and Deutsche Bank on a new single-family rental securitization. Both are expected to be announced next week.
Pre-sale reports for auto fleet ABS from Element Fleet Corporation and auto ABS from Global Lending Services also emerged.
Kroll Bond Rating Agency published a new report studying the CMBS market’s exposure to Stein Mart, a highly leveraged discount retailer that has operated at a loss over the past two years.
The rating agency found 50 properties with debt totalling US$1bn securitized across 47 Kroll-rated CMBS.
“While not the first retailer to experience a deterioration in same-store sales and margins, Stein Mart is handicapped with a highly leveraged balance sheet and interest burden stemming from a special dividend issued in its fiscal first quarter 2015,” the rating agency said.
LATAM
LatAm primaries are seeing a renewed burst of activity as Cernambi Sul MV24, owner of FPSO Cidade de Mangaratiba – MV24, sets IPT of 7% area on a new project bond.
The up to US$1.1bn senior secured 144A/Reg S notes offering has a final maturity of 14.9 years and a weighted average life of 9.1 years.
At IPTs the deal is coming about 200bp wide to Petrobras’s curve, where the 2028s and 2029s have been trading at around 4.70% and 4.78%, respectively.
The notes carry a guarantee from Cernambi Sul MV24 BV. Mitsui & Co, Modec, Mitsui OSK Lines and Marubeni are the project sponsors. Expected ratings are BB/BB (S&P/Fitch).
Also possibly on the roster today is Argentine oil and gas name Compania General de Combustibles, which finished roadshows yesterday.
It joins a string of Argentine credits that have been tapping the market of late ahead of the key presidential elections in October.
EQUITIES
High-flying branded foods maker Beyond Meat, this year’s best performing IPO, took a 28% all-in discount on a two-day marketed sale of US$520m of shares, mostly on behalf of pre-IPO shareholders taking profits.
Joint bookrunners Goldman Sachs, JP Morgan and Credit Suisse priced 3.25m Beyond shares, including 3m from insiders, at US$160.00 apiece, well below Monday’s close of US$222.13 just before the deal launched and a record high of US$239.71 late last week.
Beyond Meat, which went public at just US$25 a share in early May, makes vegan-friendly foods like burgers and sausages that are derived from pea protein.
The steep discount reflected the unseasoned nature of Beyond’s meteoric stock price surge in recent months and the widening of the company’s free float through the sale of about 5% of shares outstanding.
Dynatrace set yet another positive mark for subscription software providers, among the most reliable sectors in the new issue market in recent years.
The Thoma Bravo-backed IT monitoring software provider priced a full-sized 35.6m-share deal at US$16.00, above the US$13-$15 range upped from US$11-$13 earlier this week.
Goldman Sachs, JP Morgan and Citigroup led the US$570m deal, the week’s biggest IPO.
Dynatrace shares will open for trading on the NYSE this morning under the symbol “DT”.
Canadian cannabis company Sundial Growers funded the next stage of its expansion via a US$143m Nasdaq IPO priced last night.
Lead underwriters Cowen, BMO Capital Markets and RBC Capital Markets found buyers for 11m Sundial shares at US$13.00 each, the middle of the US$12-$14 marketing range and upsized from 10m shares at launch.
Sundial shares are scheduled to begin trading on Nasdaq this morning at approximately 10:20 am under the symbol “SNDL”.
Biotech Rapt Therapeutics could not seal the deal on its up to US$80m IPO last night.
Bank of America Merrill Lynch, Wells Fargo, BMO Capital Markets and UBS said this morning the deal was postponed due to market conditions after failing to price 5m shares within the US$14-$16 marketing range.
The banks had little room to negotiate after Rapt priced a US$30m crossover round in June at US$13.76, just below the low end of the IPO marketing range.