At least three IG issuers are braving the primary following a shattering day in markets yesterday, where recession fears and volatility ruled the day.
Very low yields are attracting corporate issuers looking to slash capital costs and refinance higher coupon debt.
In recent weeks, despite volatile markets and macro disturbances, a number of issuers, including a number of reliable utilities and a large benchmark from energy giant Occidental, have made their way into the IG primary with some success.
That aside, Wednesday’s market was still a stunner. There was no IG issuance yesterday and today the high-yield sector continues to remain dormant.
An 800 point drop in the Dow - the worst so far in 2019 - and a brief 2-year and 10-year US Treasury yield inversion was enough to stun investors and markets that the worst was coming at them.
While the US-China trade dispute has served as the catalyst for the recent stock market decline, the inversion threw a recession scare into the markets.
However, another factor not related to a US recession may also be a big factor in the inversion.
BAML said in a note that the drop in US yields may not necessarily be telegraphing a recession, but rather a sign that investor demand, especially from yield starved European investors, is the main driver of depressed Treasury yields.
Yields on some European debt hit new milestones, as fears of global growth slowdown gripped Europe.
BAML said that the catalyst for market moves was more economic data showing that the US-China trade dispute is hurting global growth from China to Europe.
“It seems to us that these two US milestones were driven by the foreign milestones in reaction to foreign economic weakness, as opposed to US recession risk,” BAML said.
“There is no doubt these downward pressures on long-term US yields are real, as foreign investors have no choice but to buy US fixed income. But that means they contain little information on the state of the US economy and likelihood of recession.”
HIGH GRADE
Bonds continue to widen on fears of a recession, but at least three borrowers are testing the market Thursday, namely insurance company Assurant as well as real-estate names Gaming and Leisure Properties Capital and Kimco Realty.
General Electric is one of the biggest names widening in the secondary after a whistleblower report was released this morning claiming the company is hiding US$38bn of fraud.
While the company has not fully reviewed the 175 page report available for public download, GE said the allegations are false in a statement to various news outlets.
However, the damage to its bonds is already being felt and resurfacing last year’s concerns of a downgrade to junk. nL2N25B0J6
GE’s 4.125% 2042s were down over a 1.5 points at a dollar price of 96.805, or about 17bp wider at US Treasuries plus 235bp, according to MarketAxess data.
Still, GE’s bonds were not the most active in the secondary.
Credit Suisse’s new non-call seven year perpetual Additional Tier 1 note (rated BB-/BB with a holdco rating of Baa2/BBB+/A-) was receiving the most investor attention as the price rose to 100.65 after pricing at par on Wednesday.
It is the Swiss bank’s first perpetual note to transition off of Libor and use Treasury notes in the backend. nL8N25A6C6
HIGH YIELD
It is another slow day in the primary market for high-yield issuers as the heated rhetoric between China and the US continues to capture the market’s attention.
Secondary markets are putting in a mix performance, but bonds issued by Teva Pharmaceutical, which were hit yesterday on more news of a probe into generic drug price increases, were making a comeback this morning.
The company’s 2021s, 2028s and 2023s were between an eighth of point to half a point higher in early trading, according to MarketAxess.
Bonds issued by WeWork, meanwhile, continue to rally after the workspace provider filed for its initial public offering this week.
Its only junk bond - the 7.875% 2025 - was trading as high as 104.50 this morning, up another 2.5 points, or 6.5 points higher since Tuesday.
Elsewhere, Barclays noted yesterday that the high-yield market now has more privately placed 144A bonds outstanding than public SEC registered issues, marking a reversal from past trends. nL2N25A1L0
“The market has moved much more toward the institutional private placement construct, and in the past year, it passed the halfway mark in terms of the amount that is 144A,” Barclays analysts wrote.
STRUCTURED FINANCE
Two ABS were priced on Wednesday, with a US$172.1m timeshare ABS from Blackstone and Hilton Grand Vacations crossing the finish line as well as a debut whole business securitization from childcare franchise Primrose Schools.
The timeshare ABS was priced at 115bp over swaps on the Triple A rated A class. BAML and Deutsche Bank were joint leads.
Lead banks Barclays and Credit Suisse were able to bring the pricing on Primrose School’s debut inside guidance of 4.75% area to price at a yield of 4.5%.
Pricing activity this week has thinned the list of deals remaining in the pipeline.
Among them, online lender Funding Circle is due to price its debut US securitization of small business loans either today or Friday, with US$198.45m of bonds on offer.
Two CMBS are also expected to price before the end of the week. Blackstone is marketing a US$271.7m floating rate CMBS backed by Manhattan multifamily properties, and Freddie Mac is out with a US$555.498m small balance multifamily CMBS.
Three non-agency RMBS deals also remain in the pipeline.
LATAM
One issuer is hitting the road ahead of a debt exchange breaking through the summer lull currently playing out in LatAm.
Colombia-based Avianca Holdings has mandated Bank of America Merrill Lynch in preparation of an exchange offer.
The company is exchanging its 8.375% 2020 for new senior secured 8.375% notes due 2020 that will be subject to mandatory exchange into new 9% 2023 bonds.
“They don’t have a choice (but) to come to the market because they have this bond maturing,” said a syndicate banker following the deal.
The company is breaking the muted tone from LatAm primary markets in the past few weeks, which have borrowers and investors contending with recession worries, volatility out of Argentina, and the general economic backdrop.
An exception could be distressed investor potentially buying into Argentine assets, following the sell-off earlier in the week, added the report.
EQUITIES
Heightened recession fears spurred by an inverse yield curve triggered a 800-point slump in the DJIA and a 25% spike in the VIX yesterday, well outside of the IPO market comfort zone.
CrossFirst Bankshares did manage to price its US$103m Nasdaq IPO of 7.1m shares at US$14.50, but below the US$15-$17 range marketed.
The offer price values the Kansas City-based bank at 1.3-times estimated tangible book value of US$11.27 a share.
KBW, Raymond James and Stephens were the joint bookrunners. CrossFirst is expected to open trading on Nasdaq this morning at approximately 10:45am under the symbol “CFB”.
Chinese digital financial services provider 9F last night raised US$84.6m in its Nasdaq IPO that priced at the top of the range.
Sole bookrunner Credit Suisse priced 8.9m ADSs, including 2.15m ADSs, by selling shareholders at US$9.50 each, compared to the US$7.50–$9.50 range. The outcome was backstopped with an US$89m indication of interest from an unnamed investors.
9F is expected to begin trading on Nasdaq this morning at approximately 10:20am under the symbol “JFU”.
Cancer drug developer Deciphera Pharmaceuticals defied gravity with a US$400m equity raise that was twice the original US$200m offering that launched on Tuesday night.
JP Morgan, Piper Jaffray and Jefferies placed 10.8m shares at $37.00 apiece, a 2.3% discount to last sale.
Deciphera shares rose up 5.5% yesterday on marketing of the deal to US$37.87, taking the two-day gains to 89.8%.
On Monday morning, the biotech announced positive top-line data of a Phase III trial for its stomach cancer drug.
Wayfair continued the parade of convertible bond issuance this week with an upsized US$825m offering.
The online furniture retailer’s shares fell 10.4% on the marketing yesterday to US$112.06.
Goldman Sachs and Citigroup sought to offset the blow by increasing the size of the financing to US$825m, from US$750m, despite pricing at a 1% coupon and 32.5% conversion premium, the investor-friendly ends of talk.