IFR SNAPSHOT-IG market wakes up after Easter holiday

8 min read
EMEA
John J. Doran

After an idle Easter Monday, the IG primary is stirring this morning.

Two deals are expected to price on Tuesday.

And the high-yield primary is also coming to life with three announcements, including Netflix. One of those deals is expected to price today.

Meanwhile, Bank of America Merrill Lynch is looking at the corporate leverage story and has a few observations.

“Corporate leverage has risen so much that very unusually many companies this time are forced to deleverage well prior to the end of the economic cycle,” BAML said in a report. “For this reason, we continue to think large BBB-rated capital structures present attractive opportunities for credit investors rarely seen.”

“After years of engineering growth through MA and buybacks, the tables are turning as issuers find direction in deleveraging. Shareholders will now bear the cost of repairing debt capital structures they previously used to reward themselves.”

HIGH GRADE

Two borrowers are expected to tap the US investment grade primary Tuesday amid a busy week for corporate earnings.

Kimberly-Clark, rated A2/A, announced a 10-year bond with initial price thoughts of 80bp-85bp over Treasuries after posting positive earnings the exceeded forecasts.

Canadian telecom Rogers Communications (rated Baa1/BBB+) is in the market with a 30-year benchmark note with initial price thoughts of 155bp over Treasuries.

The company is looking to spend billions in the coming years to build 5G technologies much like US telecoms Verizon and AT&T.

Verizon posted positive earnings that beat expectations and showed that the firm is making progress in paying down its debts.

The company ended the quarter with US$103.3bn in unsecured debt outstanding, with a debt to adjusted EBITDA ratio of 2.1 times, down from 2.4 times the previous quarter. The company is targeting a ratio of 1.75 times to 2 times, management said during the earnings call.

Later in the week, there could be issuance from Ontario Municipal Employees Retirement System (OMERS), which is rated Aa1/AA+/AAA/AAA. The company mandated new debt issuance today that could raise as much as US$5bn, according to the investor presentation.

HIGH YIELD

No new deals were priced in the high yield market on Monday, but three fresh deals were announced on Tuesday to help fill out the primary pipeline.

Media streaming service Netflix announced a new US$2bn equivalent senior offering that will be split between dollar and euro tranches. Morgan Stanley is left lead on the offering with Goldman Sachs, JP Morgan, Deutsche Bank and Wells Fargo as joint leads. The deal is expected to be priced Wednesday.

Meanwhile, food processing company JBS USA is expected to price on Tuesday a three-part add-on deal that will add a combined US$700m to three of its outstanding senior unsecured bonds: the 5.875% notes due 2024, the 5.750% notes due 2025, and the 6.500% notes due 2029.

The firm will use the new debt along with a new $1.9 billion term loan B facility and cash from the balance sheet to refinance its existing term loan B due 2022.

EG Group, a private equity sponsored retail and fuel station company that is based in the UK, also announced a EUR1.355bn-equivalent senior Feb 2025 NC2 secured high-yield offering, that will include a dollar tranche of at least US$500m. The deal will be on roadshow until May 1.

STRUCTURED FINANCE

Issuers added some new CMBS, ABS and RMBS to the structured finance pipeline on Monday.

Morgan Stanley announced a new $294.9 single-asset single borrower CMBS, MSC 2019-BPR. The deal is backed by three regional malls in Virginia, New Mexico and Florida and is expected to be priced this week.

The deal will securitize a mortgage taken out by a joint venture between Brookfield Property REIT and the Future Fund, an independently managed Australian sovereign wealth fund.

Credit Suisse (structuring) and SunTrust were also mandated as joint bookrunners on a US$408.350 consumer loan deal from Freedom Financial, a Silicon Valley debt consolidation lender.

Credit Suisse was also mandated on a US$368m non-performing loan RMBS from Pretium Mortgage Credit Partners, which is expected to be priced next week.

The only pricing activity on Monday came from American Express, which upsized its credit card ABS from US$521.49m

to US$1.564bn. The senior tranche was priced at IS+27bp, 1bp inside guidance and 5bp tighter than its previous deal which was priced in February.

LATAM

JBS USA, a subsidiary of the Brazilian meat producer of the same name, joined the pipeline this morning with a US$700m three-part add-on, bringing the total of deals expected to price this week to three.

The company is tapping its 5.875% 2024s, 5.75% 2025s and 6.5% 2029s for US$250m, US$250m and US$200m, respectively. Proceeds along with a new US$1.9bn term loan B will be used to refinance its term loan B due 2022.

Investor calls are taking place later this morning.

Else Chile-based pulp and paper company Celulosa Arauco y Constitucion is wrapping up a roadshows for a senior unsecured 144A/RegS dollar bond, while Panama’s state-owned Empresa de Transmision Electrica is also nearing the end of marketing.

EQUITIES

Earnings season is full swing as the bulk of the S&P 500 will be reporting the next three days.

Guess, the one-time iconic jeans maker, is taking a more direct approach, reaffirming earnings guidance for its current quarter while undertaking a leveraged recapitalization.

The company plans to fund the recapitalization with a new, US$250m five-year convertible bond. It is using proceeds to simultaneously buy back US$50m of stock and fund the repurchase of another US$150m through an accelerated share repurchase program.

Guess also slashed its stock dividend from 22.5 cents quarterly to 11.5 cents as part of the capital allocation strategy.

Bank of America Merrill Lynch, sole books, is marketing the CB today at a coupon of 2%–2.5% and conversion premium of 32.5%–37.5%.

Guess plans to purchase a derivative to offset dilution recognition from the CB to at least double its current share price.

Guess’ shares fell 2.5% yesterday ahead of the deal launch to US$16.65, an annual low.

Gritstone Oncology, a cancer drug developer that went public in September, launched a circa US$95m follow-on offering.

Ahead of the deal launch, Gritstone shares gained 5% yesterday to US$14.55, below the US$15 price it went public.

Goldman Sachs, Cowen and Barclays are marketing 6.5m shares for two days with pricing expected after the market close Wednesday.

The China-to-US IPO pipeline is gaining momentum.

So-Young International, a Chinese social network focused on plastic surgery, last night launched marketing of its US$179m Nasdaq IPO.

The Beijing-based is seeking to 13m ADSs at US$11.80–$13.80 each for pricing next Wednesday, May 1. Deutsche Bank and CICC are the joint bookrunners.

Yunji, a Chinese e-commerce platform, is scheduled to price its US$175m IPO the following night via a syndicate of banks led by Morgan Stanley, Credit Suisse, JP Morgan and CICC.

Douyu, the Tencent-backed live game-streaming platform, and fast-growing coffee retailer Luckin Coffee both publicly filed IPO documents yesterday, starting the clock for expected listings in May on the NYSE and Nasdaq, respectively.