IBM is lumbering into the IG primary market on Wednesday with what could be the largest bond offering so far this year.
This follows Bristol-Myers Squibb’s US$19bn M&A bond offering on Tuesday, which so far is the biggest deal for 2019.
BMY joined on Tuesday two other issuers with much smaller offerings for a grand total of US$19.900bn, pushing weekly issuance to US$22.450bn, according to IFR data. Forecasts for IG supply this week ranged from US$35bn to US$45bn.
As of close of business on Tuesday, May’s IG issuance level stood at US$29.150bn, according to IFR.
Year-to-date IG issuance now sits at US$448.543bn, behind the US$481.355bn sold during the same period in 2018, according to IFR.
HIGH GRADE
Technology company IBM is in the market with a deal expected to raise US$20bn.
Bristol-Myers managed to build a final book of US$63.5bn after books topped US$70bn. Most demand congregated around the 10 and 30-year part of the curve. Spreads tightened as much as 20bp through price progression and have continued to tighten in the secondary by as much as 7bp.
IBM will look to repeat or best that demand today with an eight-part bond across two to 30-year maturities. Initial price thoughts across the maturities range from Treasuries plus 65bp to 155bp.
IBM is seeking to fund its US$34bn acquisition of software company Red Hat, which the company believes can accelerate its position as a cloud provider.
At least two other issuers are in the high-grade market today: health insurance company Reinsurance Group of America and telecommunications company Bell Canada Inc.
Equity and credit markets remain uneasy about the US-China trade negotiations, but Bank of America Merrill Lynch said in a report today that a trade deal is completed by week’s end.
“Market implications of our baseline scenario include higher interest rates, a weaker dollar, higher stocks … tighter credit spreads, a flatter spread curve and quality compression,” the report states.
HIGH YIELD
At least three high-yield bonds are expected to price on Wednesday from MGM China, Talen Energy and DCP Midstream in what is a slightly slower pace after the busiest day of the year by number of deals for the US junk bond market on Monday.
That rush of deals, mostly refinancings from Double B rated borrowers, was well received. Two issues - from Icahn Enterprises and Springleaf Finance - were upsized, and most deals cleared at levels that were in line with price talk.
Casino company MGM China is garnering attention in the market, as investors say it is offering a pick up to MGM in the US.
It is offering two tranches of senior notes: a five-year non-call two at price talk of 5.5-5.75%, and a seven-year non-call three at price talk of 6-6.25%. In all, it is looking to raise US$1.25bn.
And more deals still could clear by the end of the week with Virgin Media also looking to issue new bonds to refinance debt.
STRUCTURED FINANCE
Around US$2.3bn of ABS deals cleared the market on Tuesday and a raft of CMBS and RMBS deals are being lined up to hit the market soon.
Seven CMBS deals are in the pipeline so far, although just two have been formally announced - a US$692m conduit deal from Goldman Sachs and a US$783.9m multifamily deal from Freddie Mac.
The flurry of CMBS activity follows a quiet April - issuance dropped to US$3.1bn in the month, down from US$7.2bn in March, and on a year-on-year basis, volumes are down 16.5% compared with 2018, according to Kroll Bond Ratings.
“It may feel like a decent amount of conduit paper, but issuance was light before this,” said Michelle Russell-Dowe, head of securitized credit at Schroders.
Wells Fargo is also preparing its third post-crisis RMBS deal, a US$553.594m deal backed by prime jumbo mortgages. The deal is Wells’ second of the year.
And the auto ABS pipeline continues to be robust with three sub-prime issuers filing 15G documents for potential deals: Flagship Credit Acceptance, Santander Consumer USA and United Auto Credit Corp.
LATAM
Market activity is starting to pick-up today with Chile announcing a roadshow to retap its 2023, 2030 and 2050s local bonds.
The local notes, which are Euroclearable, will price as early as next week. Scotiabank, Itau and Santander are working on the deal.
IPTs on Paraguay-backed infrastructure notes from Bioceanico Sovereign Certificate Limited have been set at 5.75% area on a US$732.2m 15.1-year bond.
The week had a slow start as issuers were hesitant to price deals off the back of global political instability. However, positive sentiment in EM credit remains strong.
“I think there are ongoing issues, but credit markets are fine. EM is holding up well. I still see the market being constructive for new issues,” said a syndicate banker.
EQUITIES
US stocks suffered their biggest losses of the year on concerns that rising trade tension between the US and China could crimp global growth.
The S&P 500 tumbled 1.7% Tuesday to 2,884 and volatility spiked 28% to 19.80.
Not an ideal backdrop for the nine IPOs that are expected to price their offerings this evening.
Parsons, an employee-owned government IT/engineering firm, set a cautious tone by taking mid-point pricing on its US$500m IPO last night.
Goldman Sachs, Bank of America Merrill Lynch and Morgan Stanley gave pricing this evening on 18.5m shares at US$27.00 each, versus talk of US$26–$28 and after indicating multiple-times oversubscription and the likelihood for upper-half of range pricing.
Parsons will open for trading later this morning on NYSE under the symbol “PSN”.
Consolidated Edison braved the market volatility with a US$492m primary block overnight Tuesday that will fully fund the equity component of the New York City utility’s planned 2019 capex.
Wells Fargo sold 5.8m shares at US$84.95, the bottom of a US$84.95-$85.21 marketing range and a 0.3% discount to last sale.
Uber Technologies and will close bookbuilding on its up to US$9bn today at 12:00pm, a full day-and-a-half ahead of pricing post-close Thursday.
Morgan Stanley and Goldman Sachs, the active of six bookrunners, are “doing a good job pushing accounts not to inflate orders,” in the words of one investor.
“‘Don’t go in for free money. This is a difficult, long story,’” said the investor.
That has led some to expect that Uber is unlikely to push too hard on valuation within the US$44-$50 marketing range on the 180m shares it seeking to sell.