Saturday, 20 July 2019

IFR SNAPSHOT-IG idle; HY to see launch, price and Match

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As is the norm, the IG primary is idle on Friday after a light week.

We managed to see weekly issuance of US$11.6bn, according to IFR data, falling short of the weekly estimate of up to US$20bn.

Still, there was enough to keep investors happy.

For the week ended Feb 6, Lipper US Fund Flows reported investment-grade funds net inflow at US$2.668bn.

The buyside poured US$3.86bn into US junk funds for the same period, which was the biggest inflow since December 2016, according to Lipper data. nL5N2017AZ

Commenting on recent investor activity, BAML said in a report that since January 2, “investors have bought US$30bn of IG/HY/EM bonds, US$16bn of EM equities, US$3bn of government bonds, and have sold US$26bn of US equities and US$7bn of European equities.”

“Investors are back to discounting secular stagnation and buying “yield” and “growth”.



Bankers are calling for up to US$30bn of supply next week, with a large part of that likely to come from US tobacco group Altria, which is looking to fund its purchase of e-cigarette maker Juul Labs and Canadian cannabis producer Cronos Group.

The size of the deal, which could be in euros and dollars, is expected to be sizeable. Altria has a US$14.6bn term loan in place for the Juul and Cronos acquisitions.

Volumes underwhelmed this week with total supply of US$11.6bn. The Street had been calling for US$15-US$20bn.

“The credit rally stalled a bit, and the tone feels a bit weaker. That probably kept anyone that was thinking of coming on Thursday on the sidelines,” one syndicate banker told IFR.

Thursday was a doughnut day. Average investment-grade spreads widened by 2bp on Thursday, according to ICE BAML data, and stocks are poised for another down day which will likely keep issuers at bay for the second straight day.

Some analysts are cautioning for a widening after the recent rally.

“We expect US high-grade credit spreads to rise 30 bps by year end, with some risk of overshooting to the wider side,” said Citigroup analyst Daniel Sorid in a note out on Friday.



High-yield bond funds enjoyed the fourth biggest inflows on record this week as investors moved cash out of floating-rate leveraged loan funds and into fixed rate assets.

Spreads came under pressure on Thursday, tracking a downward move in the stock market. Average high yield spreads widened 16bp to 429bp, breaking a run of seven consecutive days of tightening.

CommScope, CSC Holdings and Clear Channel Worldwide priced a combined US$6.24bn of bonds on Thursday and one more issuer emerged on Friday.

Match Group, the owner of dating services such as Tinder and OkCupid, is expected to price a US$300m 10NCL5 senior note on Friday.

The company will pay down its revolving facility with the proceeds, as well as for general corporate purposes. It had US$185m drawn on the revolver as of Wednesday, when it announced fourth quarter earnings.

Last year the firm paid a US$556m special cash dividend using US$260m of the revolver and cash on hand.

In the earnings call, Gary Swidler, CFO, said the company may look to increase leverage from around two times to 2.5-3 times through merger and acquisition activity.

Bank of America Merrill Lynch is left lead on the new bond.



More sub-prime auto and marketplace ABS will be on tap for the week ahead, following a flurry of prime bonds from big-name issuers that sped through the market.

ABS spreads narrowed as buyers easily absorbed some US$7.7bn of supply - the year’s busiest week of issuance yet.

But up ahead Santander and Credit Acceptance will test appetite for their sub-prime auto securitizations.

Online lenders SoFi Lending Corp and Upstart also have personal loan ABS deals in the works.

The amount of outstanding ABS backed by unsecured consumer loans reached US$30bn at the end of 2018, or nearly double the amount of outstanding retail credit card ABS, according to Wells Fargo data.

But uneven performance across various online platforms should warrant greater spread tiering on subordinate personal loan ABS versus sub-prime auto ABS, Wells said in a new report.



No new deals were announced on Friday in the LatAm primary market, but one trader said the tone was slightly better after a more volatile session yesterday.

“Argentina and Brazil are both trading up, but that’s not on any specific news. It’s more of a consolidation after the sell-off yesterday,” said the trader.

The focus, he said, was on developments in Venezuela.

“Everyone is waiting to see how the political situation will evolve, and if we can trade again,” said the banker.

Just three deals - from Paraguay, LatAm Airlines and CAF - priced in the primary market this week for a total of US$2.35bn.

One deal from Brazilian pulp maker Eldorado Brasil Celulose was postponed after a dispute with one of its stakeholders prompted investors to demand more yield. nL1N2021D8

Several issuers, including Brazilian pulp and paper exporter Klabin, have finished roadshows but earnings blackouts may keep corporate issuers on the sidelines next week, bankers said.

But Brazil’s Banco BTG Pactual will finish investor meetings on Monday for a potential Tier 2 offering, and on the sovereign side, the market is also waiting to see if Brazil will surface with a trade. nL5N1ZX0TF



Tencent-backed Chinese e-commerce/entertainment company Pinduoduo overcame a share price slide to price a US$1.38bn first time follow-on offering overnight just six months after its US$1.6bn Nasdaq IPO.

After two days of marketing, Goldman Sachs, Morgan Stanley, Bank of America Merrill Lynch, CICC and China Renaissance priced the upsized offering of 55m ADSs (up from 51.9m at launch) at US$25.00 each.

The deal was multiple times oversubscribed, enabling the company to increase the primary component from 37m shares to 40.2m ADSs, or 73% of the offering.

However, the deal came at a wide 17.6% all-in discount versus the pre-launch close of US$30.33.

In an auspicious sign for its Nasdaq debut today, biotech unicorn Gossamer Bio upsized its IPO by 20% to US$276m last night.

Bank of America Merrill Lynch, SVB Leerink, Barclays and Evercore priced 17.25m shares, up from 14.4m at launch, at the marketed fixed price of US$16.00.

The IPO values Gossamer Bio above US$1bn.

Gossamer is the second biotech unicorn to go public this week after Alzheimer’s disease specialist Alector.

Alector fell 5.3% in its debut session yesterday after fetching a US$1.3bn valuation in its IPO on Wednesday night.

Gossamer Bio is expected to open trading on Nasdaq at roughly 10:20 AM under the symbol “GOSS”.

The rest of this week’s three biotech IPOs, Harpoon Therapeutics, scored a midpoint outcome on its US$75m IPO.

Citigroup and SVB Leerink priced 5.4m shares at US$14.00, despite early talk of price sensitivity toward the lower end of the US$13-$15 range.

Harpoon is scheduled to open at 11:10 AM on Nasdaq this morning under the symbol “HARP”.



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