Two IG offerings are slated for sale on Thursday, as the pace of issuance slows down for the week.
As of end of day on Wednesday, 19 IG deals were priced in the primary this week.
On Wednesday, 6 IG deals were priced totaling US$7.35bn, pushing weekly volume to US$25.05bn and monthly IG levels to US$74.544bn, according to IFR data.
Year-to-date issuance totaled US$676.312bn, well behind the US$742.998bn sold during the same period in 2018, according to IFR.
The market environment is still welcoming for issuers and investors.
“By now credit spreads have retraced pretty much all spread widening from 4Q18,” BAML said in a report.
HIGH GRADE
Two borrowers have lined up investment-grade deals for Thursday.
PepsiCo is out with a dual-tranche senior unsecured offering on Thursday. The firm is issuing A1/A+ rated 10-year and 30-year fixed rate tranches, with initial price thoughts of 75bp area and 95bp area.
Proceeds will be used for general corporate purposes including the repayment of commercial paper.
American Express is also in the market with a five-year fixed senior unsecured note, which has initial price thoughts of high-80bp area.
These follow the six issuers yesterday.
They included a 10-year bond from Corona-maker Constellation Brands, which was upsized to US$800m from US$500m after drawing US$2.6bn of demand.
JP Morgan also sold the first SOFR-linked US bank preferred note on Wednesday, which was the most actively traded bond in the market on Thursday morning, according to MarketAxess data. On a cash basis the bond has traded up to 100.5 after being sold at par.
Secondary market spreads have continued to tighten, with average high-grade corporate bond spreads at year-to-date tight levels of 116bp over Treasuries, according to ICE BAML data.
HIGH YIELD
Reflecting what has been a hot primary market for high-yield names, Global Aircraft Leasing announced a rare payment-in-kind note on Wednesday
The borrower, which is majority owned by Dublin-based aircraft leasing company Avolon (Baa3/BBB-/BBB-), is looking to raise US$1.5bn to refinance debt.
The five-year non-call two, expected to be rated Ba2, marks the second PIK toggle to hit the US junk bond market this year - a structure typically seen as a bull market trade.
In May the private equity owners of biotech and pharmaceutical company Pharmaceutical Product Development financed a dividend from a US$900m PIK toggle note.
Global Aircraft’s deal is being sole led by Morgan Stanley which is holding calls today and Friday.
This comes after the primary market saw another US$2.12bn in new supply from three issuers including Citgo, the US unit of Venezuela oil firm PDVSA, which raised US$1.37bn through a five-year non-call two to refinance a 2020 maturity.
In the secondary markets, meanwhile, the 5.3% 2025s issued by Tesla are taking a hit after the electric car maker’s second quarter revenues fell short of analysts’ expectations.
It also announced that its chief technology office JB Straubel, the man who pioneered the company’s electric batteries, was stepping down.
The bond was trading at 87.75, down over a point from Wednesday’s close, according to MarketAxess data.
STRUCTURED FINANCE
Data center company Vantage has mandated Barclays, Deutsche Bank and Guggenheim as joint lead bookrunners for the firm’s third securitization of data centers.
The firm is issuing US$398m of A- rated bonds backed by three data centers in Santa Clara, Montreal and Quebec City.
The banks are marketing the deal through this week and are expected to announce the deal early next week.
Primary market activity slowed on Wednesday with just a prime auto loan ABS, a single-family rental ABS, and a non-QM RMBS crossing the line.
CarMax’s prime auto loan deal was upsized to US$1.5bn, from an initial US$1.15bn, and priced at the tight end of guidance at IS+40bp.
Home Partners of America saw the seven-year tranche of its US$262.615m single-family rental bond priced at the wide end of guidance at IS+105bp.
Starwood also announced a new US$936.75m CRE CLO, STWD 2019-FL1, which is expected to be priced this week. The deal will finance a US$1.1bn pool of floating rate commercial real estate loans.
LATAM
Latin American primary bond markets look set for a quiet day after two issuers raised a combined US$1.075bn on Wednesday.
Financial services firm Intercorp Peru priced a US$325m a 3.875% 10-year at 98.137 to yield 4.103% or US Treasuries plus 205bp after tightening pricing 32.5bp from start to finish.
Brazilian conglomerate Cosan also raised US$750m through a 10NC5 that priced at 99.987 to yield 5.50%, inside initial price thoughts of high 5%.
That bond was hovering just above reoffer in early trading at 100.20, off the high of 101.00, while Intercorp’s new 2029 was changing hands at 98.875, according to MarketAxess data.
While LatAm primaries should be shutting down as August approaches, bankers aren’t discounting an extension of activity after ECB Mario Draghi indicated more monetary easing was on the cards.
That is likely to give another lift to credit and perhaps encourage more borrowers to enter the market before the September rush.
Emerging markets corporate bonds were largely trading up this morning with Pemex’s 6.35% 2048 the outperformer after jumping over one point earlier in the session.
EQUITIES
Healthcare IT platforms Health Catalyst and Livongo Health proved the clear winners in this week’s IPO market.
Health Catalyst drew massive demand before pricing 7m shares at US$26.00, above the tight US$24–$25 range that was upped from US$20–$23 on Tuesday morning for US$182m of proceeds.
Goldman Sachs, JP Morgan and William Blair acted as joint bookrunners. Health Catalyst is expected to open on Nasdaq this morning at approximately 10:20am under the symbol “HCAT”.
Demand for diabetes management platform Livongo Health might have been even hotter.
Underwriters led by Morgan Stanley, Goldman Sachs and JP Morgan ended up pricing an upsized 12.7m shares at US$28.
The US$355.6m offering was upsized from 10.7m shares on top of the move by underwriters earlier this week to up the range to US$24–$26 range upped from US$20–$23 on Monday.
Livongo is scheduled to open on Nasdaq at approximately 10:00 am under the symbol “LVGO”.
They all can’t be winners.
Residential solar energy firm Sunnova Energy International ended up pricing 14m shares at US$12.00, down from the terms at launch of 17.6m shares at US$16–$18. Early yesterday ahead of pricing, underwriters slashed the price range to US$12-$13 yesterday morning.
Sunnova shares are poised to debut on the NYSE this morning under the symbol “NOVA”.
The IPO of specialty P&C insurer ProSight Global also struggled. The company priced 7.8m shares (55% prim, 45% sec) at US$14.00, below the US$16–$18 range and downsized from 8.8m shares at launch. Goldman Sachs, Barclays and Bank of America Merrill Lynch acted as joint bookrunners.
ProSight will trade on NYSE under the symbol “PROS”.
Skin cancer diagnostics company Castle Biosciences’ US$64m IPO was last night’s smallest deal and may have benefited from its compact size.
SVB Leerink and Robert W Baird priced an upsized offering of 4m shares at US$16, the high end of the US$14-$16 range and upsized from 3.3m shares.
Castle Biosciences will open on Nasdaq at 11:50am this morning under the symbol “CSTL”.