IFR SNAPSHOT-IG supply finds willing buyers in calmer markets

9 min read
John J. Doran

Stability breeds deals: 21 IG offerings have been sold this week as of day-end Wednesday.

Just two IG deals for Thursday, but the IG primary was due a brief breather.

On Wednesday, 10 issuers raised a total of US$13.825bn, pushing weekly and monthly issuance to US$23.35bn, exceeding the weekly forecast.

And this supply pattern could continue.

IFR reported yesterday that Financial services technology provider Fiserv had begun marketing a US$10bn-US$12bn bond that could price as early as week’s end.

The bond will be used to help fund the largest digital payments M&A deal ever — a US$22bn acquisition of payment processing company First Data.

Meanwhile, US stocks were roaming in positive territory after the three main stock indices closed strongly again on Wednesday, with the Dow topping 200 points.

And Treasuries yields continued to slip, inviting issuers to eye even lower borrowing costs.

Despite trade talk turmoil, financial markets rallied after Federal Reserve members stated that they would be willing to cut rates in order to keep the economy rolling and combat any negative effects brought on by tariffs.

“Perhaps the recent decline in yields can attract some new issuance here,” Bank of America Merrill Lynch opined in a note.

HIGH GRADE

The high-grade bond market is cooling down as just two issuers announced deals Thursday.

The two issuers were REIT Camden Property Trust and freight railcar company TTX.

Financial services data company Fiserv began marketing an up to US$12bn bond this week and was poised to tap the market today, but ultimately stood down.

It is unlikely that issuers were moving aside in anticipation of Fiserv, one banker said.

“There just weren’t a lot of folks looking to come to market today,” the syndicate said.

Secondary spreads are more mixed in trading today.

Campbell Soup’s 4.8% 2048 bond was the most actively traded as it moved 10bp wider to 238bp over Treasuries early Thursday, according to MarketAxess data.

Campbell Soup reported fiscal third quarter 2019 earnings that were mostly positive as profits rose and the company demonstrated some ability to repay debt ahead of the sale of its international snack business.

Yet, CreditSights estimates Campbell Soup’s leverage is still around five times as it remains one of the riskier credits in a volatile Triple B food and beverage sector where consumer tastes are changing rapidly.

HIGH YIELD

The primary market for junk credits looks set for another active day as satellite services provider Intelsat and energy company Vistra ready deal pricings on Thursday.

Vistra is taking its second stab at the market in a matter of days after it issued an investment-grade rated secured deal earlier this week.

Today it is offering investors a US$1bn unsecured eight-year non-call three, rated Ba3/BB/BB, as it looks to repay bonds maturing in 2022 and 2024.

Intelsat, meanwhile, is coming with a tap of its 9.75% senior notes due 2025. Proceeds are slated for general corporate purposes, including debt refinancing, capex and future strategic transactions.

Grubhub may also price as early as today, according to one investors looking at the credit.

The food delivery company, rated Ba3/BB, is looking to raise US$400m through an eight-year non-call three, its debut in the bond market.

Even so, investors have been heard seeking a stronger covenant package on the deal given the uncertainty over the outlook for the sector.

“It isn’t surprising there isn’t much covenant protection at that rating level,” said one investor.

“But the big question for me is over the industry, which is evolving rapidly and there is a lot of well financed competition in this space.”

Meanwhile bonds issued by pharmaceuticals company Mallinckrodt were looking weaker in early trading following news that it had tentatively agreed to pay a US$15.4m settlement to the US Justice Department.

Its 5.5% 2025s were trading as low as 64.063, down from a closing price of around 66.00, according to MarketAxess data.

STRUCTURED FINANCE

The CMBS market was busy on Wednesday with three deals priced.

Sole bookrunner Deutsche Bank priced a US$229.9m single-asset deal for Savanna Real Estate Fund, COMM 2019-521F, backed by a Manhattan office building close to Grand Central on Fifth Avenue. The five-year tranche was sold at 90bp over Libor.

Morgan Stanley and Cantor meanwhile sold a US$601.8m conduit deal, MSC 2019-H6. The senior 10-year notes were sold at IS+97bp, wide of 95bp area guidance.

Freddie Mac also sold a new US$645.24m K-series multifamily deal, with the four-year notes sold at IS+51bp, outside guidance of 48bp area.

Meanwhile, the ABS pipeline is building after a flurry of pricing activity on Tuesday.

Global Jet Capital’s third aircraft ABS, BJETS 2019-1, emerged on Wednesday. Citi, Bank of America Merrill Lynch, Deutsche Bank and Morgan Stanley are pre-marketing the US$517.1m deal, which is expected to be announced later this week.

Toyota mandated Citi, Barclays, JP Morgan and TD to arrange a debut US$950m revolving auto loan deal backed by longer term loans that are excluded from its regular auto ABS shelf. The deal is expected to be announced early next week.

LATAM

It continues to be fairly quiet on the issuance front in LatAm this week. However, news of Fitch’s downgrade of Mexico to BBB from BBB+ shook things up overnight in secondary levels.

“People were expecting the downgrade,” said a syndicate banker.

“The CDS started 5 basis points wider but now they’re down to 2.5 bp points wider. It’s hard to tell what’s from the downgrade or from other (factors).”

Some Pemex bonds were down over two points this morning.

Fitch’s downgrade was followed by Moody’s revising the sovereign’s A3 outlook rating to negative, citing weakening economic growth and uncertain policymaking.

Still, market conditions have stabilized since the beginning of the week.

“At some point people have to move on, but I wouldn’t be pushing a corporate into the market right now,” added the banker, noting that sovereigns and quasi-sovereigns in LatAm have performed better than corporates.

Mineral Logistics, owned by Corporacion Navios, and backed by a 20-year Vale take-or-pay contract, is wrapping a roadshow tomorrow.

The $483m 18.2-year senior note is being led by Citigroup and Morgan Stanley, with Goldman Advisors as co-managers.

EQUITIES

Crowdstrike, a fast-growing cybersecurity specialist, dramatically hiked the valuation on its IPO this morning, a full week ahead of expected pricing.

The company is now looking to sell 18m shares at US$28-$30 apiece, up from the US$19-$23 at launch.

The high-end of the revised range would value the company at US$6.8bn.

JP Morgan, Goldman Sachs, Bank of America Merrill Lynch and Barclays still expect to price the all-primary market after the market close Tuesday.

GSX Techedu, a Chinese provider of post-secondary education, last night secured US$208m from its NYSE-listed.

Credit Suisse, Deutsche Bank, Barclays and CLSA placed 19.8m ADSs at US$10.50 each, the midpoint of a US$9.50–$11.50 marketing range and valuing the company at US$2.6bn.

GSX debut this morning on the NYSE under the symbol “GSX”.

Investment banks and financial sponsors have ramped up risk trades amid surging stock market.

Goldman Sachs last night backstopped a pair of sponsor sell-downs in BJ’s Wholesale Club and FreshPet.

The bank reoffered both at the bottom-end of the range marketed.

BJ’s secondary sale of 17.5m shares were sold at US$24.65, a tight 0.4% discount to the US$24.74 last sale Wednesday. Freshpet’s offering of 3.3m secondary shares printed at US$46.75, a 0.3% discount to the US$46.89 last sale.

CVC Capital Partners and Leonard Green were the sellers on BJ’s, and MidOcean Partners on Freshpet.