At least four deals will hit the IG primary on Wednesday, while a Netflix offering will dominate the high-yield arena.
The S&P 500 index closed at a record high on Tuesday, feeding into the positive market environment for corporates. Spreads continue to remain tight, with the year-to-date average IG spread 42bp tighter and the average HY spread 161bp tighter.
On Tuesday, two IG offerings came to market totaling US$1.950bn, pushing April issuance to US$70.950bn. Year-to-date issuance now stands at US$398.693bn, still behind the volume pace of US$435.732bn during the same period in 2018.
HIGH GRADE
Royal Bank of Canada, Cantor Fitzgerald, Aqua America Inc, and Penske Truck Leasing will invade the investment-grade primary today.
Meanwhile, M&A remains front of mind in the market as Occidental attempts to out bid Chevron for the purchase of Anadarko Petroleum.
Occidental is looking to become the largest Permian gas producer through this deal that offers US$76 per share and a 50% cash portion, up from Chevron’s US$65 per share comprised of 25% cash.
Meanwhile, Kraft-Heinz is in need to lower its debt and continues to shop asset sales, the latest of which is its potato-based frozen food brand Ore-Ida, according to reports.
Evercore was hired to explore a potential sale, which could total some US$1.5bn-US$2bn. The company is also contemplating the sale of coffee brand Maxwell House and cottage cheese/sour cream brand Breakstone’s.
The combined proceeds could total some US$4.4bn-US$4.9bn and would lower the company’s net leverage below four times, according to CreditSights.
Kraft-Heinz could even consider the sale of its entire frozen food business, which generates US$2.6bn in annual sales for the company and could be valued at US$5bn-US$6bn, according to the report.
HIGH YIELD
Two borrowers raised US$1.025bn in the high-yield market on Tuesday, and as many as three may follow on Wednesday.
JBS USA tapped the market with a three-part offering on Tuesday to raise US$700m while Entercom Media upsized its US$300m offering to raise US$325m.
The largest deal on offer on Wednesday will come from Netflix. The media streaming service is out with a US$2bn deal 10.5 year offering in dollars and euros, with the dollar notes talked at 5.5% area and the euros at 4%.
The issuer’s existing 2029 notes are trading at 109 in the secondary market, indicating a yield of 5.18%, according to MarketAxess data.
Car seat maker Adient is due to price a US$750m 7NC3 deal on Wednesday via left lead Bank of America Merrill Lynch. The deal has price talk of 7%-7.5% area.
BAML is also left lead on a new US$250m 5.5NC2 deal from APX Group which is expected to be priced on Wednesday. The deal is being offered to redeem its 8.75% 2020 notes. The new deal has price talk of 8.25% area.
STRUCTURED FINANCE
No new deals were priced in the primary market on Tuesday in what has been a quiet start to the week for structured finance.
New deals were added to the pipeline however and pricing activity is expected today.
Morgan Stanley is expected to price a US$294M single-asset single-borrower CMBS on Wednesday that is backed by mortgages on three regional shopping malls.
The deal will provide financing for a joint venture between Brookfield Property REIT and the Future Fund, an Australian sovereign wealth fund.
The senior tranche on the floating rate deal has been launched at 140bp over Libor.
Online lending platform Marlette is expected to price a US$329m consumer loan deal on Thursday. Goldman Sachs and Morgan Stanley are joint bookrunners on the deal
Online marketplace lender LendingClub said on Tuesday that it would partner with Opportunity Fund and Funding Circle in a branded joint venture to offer small business loans.
LendingClub is looking to broaden its offering by opening up its lending platform to third parties, the company said.
LATAM
The backdrop for primary activity remains healthy as Chile’s Celulosa Arauco and Panama’s Etesa end roadshows this week.
“With Fed and ECB noise off the table investors have more of a motive to continue buying stuff,” said one banker. “Not everyone is bullish but it is healthy.”
Brazilian bond and equity prices were moving higher after pension reform cleared a congressional hurdle late Tuesday.
The 6.9% 2049 issued by Brazilian oil firm Petrobras were about 25 cents higher at 100.50, while the 5.75% 2025s from beef name JBS, which were tapped yesterday at 101.75, were changing hands at 102.625, according to MarketAxess data.
“People will be digesting the news, but it should be a positive day,” said Klaus Spielkamp, head of fixed-income sales at Bulltick. “The Bovespa is following the S&P and the momentum of global risk.”
EQUITIES
New issues have taken a back seat to first quarter earnings.
With 155 S&P 500 companies reporting earnings, including 42 today and 62 on Thursday, this week marks the heart of the earnings season.
Huami, a Chinese maker of wearable fitness devices, launched a one-day marketed stock sale last night that would allow insiders to monetize a portion of their holdings.
Morgan Stanley, Credit Suisse and Citigroup are marketing 7.9m ADSs, including 7.1m from insiders, throughout today’s session.
Gritstone Oncology, which saw its shares plunge 11% yesterday, will continue marketing its planned sale 6.67m new shares today for pricing after the close.
Goldman Sachs, Cowen and Barclays are joint bookrunners on the Gritstone offering.
Guess, the once iconic jeans maker, found an extremely positive response to a leveraged recapitalization that was underpinned by a new US$275m five-year CB.
Bank of America Merrill Lynch, sole books, placed the CB last night at a 2% coupon and 37.5% conversion premium, the aggressive ends of 2%-2.5% and 32.5%-37.5% talk and an upsize from the US$250m marketed.
Guess’ shares gained 12.6% over the Tuesday marketing to US$18.75. They are up another 2.8% to US$19.25 in early trading Wednesday.
Guess, whose shares were pummeled earlier this on fourth quarter earnings and inventory liquidation, spent US$50m of the proceeds raised on a concurrent buy back. It bought back another US$170m of stock through an accelerated share repurchase program.
All in, Guess bought back roughly 11.7m shares, or 12% of the 81.7m outstanding.
To drive the bullish view home, Guess spent a portion of the proceeds on a derivatives to offset dilution from the CB to share prices above US$46.875, a 150% premium to reference on pricing of the CB.