The IG primary is perking up with four deals on Thursday, including one from Starbucks.
And Tesla announced it is looking to sell stock and convertible notes to raise capital.
We kicked off May with one deal totaling US$500m, pushing weekly supply up to US$16.000bn, according to IFR data. Year to date issuance now stands at US$419.893bn, well behind the pace set for the same period in 2018 at US$466.180bn, according to IFR.
Credit spreads continue to remain in the tight range, with the year-to-date average IG spread 42bp tighter and the average HY 162bp tighter, according to ICE/BAML data.
HIGH GRADE
Four investment-grade borrowers are in the primary Thursday as the market prepares for a busy month of May.
Starbucks is the largest blue-chip name to announce new debt issuance today as its shops 10 and 30-year bonds.
The 10 year is funding general corporate purposes including dividend payments and stock buybacks, while the 30 year is a Green Bond funding the coffee makers various sustainability efforts.
Starbucks is pushing its greener stores initiative, which sets goals of operating 10,000 LEED (Leadership in Energy and Environmental Design) certified stores worldwide by 2025 up from 1,600 today.
The company also plans to eliminate all its plastic straws by 2020, double the recyclable content in its cups, and continue investments in solar and wind energy that it puts back into the grid, which currently powers 62% of its operations through renewable energy, according to the investor presentation.
Other issuers in the market include Royal Bank of Scotland, Italian oil and gas company ENI and Florida Power & Light Co.
Bristol-Myers Squibb scheduled investor calls for today and tomorrow and is expected to come with an eight-tranche bond early next week.
HIGH YIELD
With just one deal priced so far this week in the high-yield market, the primary is gearing up for a busy end of the week with at least a couple of deals expected to price today.
Tool maker JPW Industries, rated B3/B, has set price talk at 9% area on a US$60m mirror of its 9% 2024 bonds and is due to price the deal on Thursday.
EG Group, meanwhile, is expected to price an upsized US$750m 2025 issue, callable after two years, at a yield of 6.75% - the tight end of price talk. The dollar bond is part of a larger dual-currency trade that includes euro tranches.
In secondary, Tesla’s only junk bond - the US$1.8bn 5.3% 2025 issue - jumped by more than two points in secondary markets on Thursday, according to MarketAxess data.
The move came after Tesla announced it was selling stock and convertible senior notes to raise capital.
The bond hit a cash price of 88 in early trade, and was the most heavily traded corporate bond, according to MarketAxess. It last traded at 85.74 on Wednesday.
STRUCTURED FINANCE
No deals were priced in the primary market on Wednesday but a handful joined the pipeline.
Navient has mandated Bank of America Merrill Lynch, Barclays and RBC on a new US$610m private student loan refi deal backed by Earnest collateral. The deal is expected to be launched next week.
Seacube Container Leasing has mandated RBC and Wells Fargo on a new US$300m container lease deal, CLIF 2019-1, which is also expected to be formally announced next week.
According to leads the deal has the potential to be upsized to US$375m. If this happens, the borrower will voluntarily prepay the remaining outstanding amount of the CLIF Series 2016-1 notes.
On Thursday morning, DriveTime mandated Deutsche Bank, Citibank and Wells Fargo for a US$456m sub-prime auto deal, which is also expected to be launched next week.
Fitch also released a pre-sale report for World Omni Financial Corp’s US$828m prime auto ABS deal, which is backed by retail installment contracts on Toyota cars and trucks. The collateral pool has a weighted average FICO score of 756, the highest in the program’s history, according to Fitch.
LATAM
The LatAm primaries are set to enjoy a two-deal day as Brazilian beef company Marfrig and Chilean mining and chemical company SQM readying bonds for pricing on Thursday.
SQM is out with initial price thoughts of US Treasuries plus 200bp on a US$350m 10-year bond, while Marfrig is testing the waters with IPTs of mid 7% on a seven-year non-call three bond.
The deals come on a mixed day in the EM corporate space as bond issued by Mexican state-owned oil firm Pemex continue to inch lower in the secondary markets.
The market is also digesting yesterday’s comments from the Federal Reserve which decided to hold interest rates with little indication that any changes were on the horizon.
Elsewhere in the pipeline Paraguay’s Bioceanico Sovereign Certificate Limited is readying a structured US dollar bond trade.
The 144A/RegS senior secured notes will be backed by certificates that constitute contractual payment obligations payable by the Republic of Paraguay.
The certificates will be issued upon completion of milestones associated with the construction of Paraguay’s Corredor Bioceanico highway.
EQUITIES
Tesla is seeking to raise US$2bn from the sale of common stock and convertible bonds in a bid to shore up liquidity.
Goldman Sachs and Citigroup will market the financing throughout today’s session for pricing after the market close.
Tesla is selling 2.7m shares and US$1.35bn worth of a five-year convertible bond, with CEO Elon Musk committing to invest US$10m personally in the common stock sale.
The CB is being talked at a 1.5%-2% coupon and 27.5%-32.5% conversion premium.
Tesla has come under pressure after swinging to a quarterly loss in the first quarter and warning that losses will extend into the second quarter. The electric carmaker saw cash levels dwindle to US$2.2bn.
“There is some merit to raising capital,” Musk said last week on Tesla’s quarterly earnings call. “It’s probably about the right time.”
Tesla shares popped 5.2% in early trading Thursday to US$246.22.
General Electric took in US$1.6bn check on a secondary selldown of Wabtec, the railroad locomotive and parts maker that recently merged with GE’s transportation unit.
In addition to US$2.9bn of cash, GE received a 24.9% stake of the merged Wabtec that is was obligated to sell to below 18.5% within one year and entirely by February 2022, the three-year anniversary of closing.
GE last night sold 22m shares at US$73.50 apiece, a massive upsize from the 12.5m at launch and reducing its stake in Wabtec to 13.5%. Exercise of the underwriters’ overallotment option could trim GE’s position to 11.7%.
The torrid pace IPOs continues.
Beyond Meat tapped into strong investor demand to raise US$240m on its offering.
The plant-based meat maker placed 9.625m shares at US$25.00 apiece, the top of a US$23–$25 marketing range that was revised from the original 8.75m shares at US$19–$21.
Goldman Sachs, JP Morgan and Credit Suisse were the joint bookrunners.
Beyond Meat will open on Nasdaq at around 10:45 am this morning under the symbol “BYND”.
TransMedics Group, a medical technology company focused on transporting transplant organs, also saw a strong outcome to its IPO by landing an upsized US$91m.
Morgan Stanley and JP Morgan priced an all-primary offering to 5.69m shares, from 4.7m, but resisted the urge to push beyond mid-point US$16.00 pricing.
TransMedics is expected to open at 10:20 am on Nasdaq this morning under the symbol “TMDX”.
Canadian cannabis grower CannTrust Holdings was left hungry on a US$200m NYSE raise that Bank of America Merrill Lynch, Citigroup, Credit Suisse and RBC Capital Markets priced at US$5.50 a massive 22.6% file-to-offer discount.