JP Morgan will brave a traditionally quiet Friday market alone to end a steady week of IG issuance.
So far this week, deals totaling US$25.150bn were priced, bringing monthly issuance to US$64.325bn and year-to-date volume to US$275.793bn, according to IFR data.
And not to be outdone, the-high yield primary had one of its busiest weeks in a year.
Driving this was investor demand.
For the week ended March 13, Lipper US Fund Flows reported investment-grade funds net inflow of US$3.295bn and high-yield funds net inflow of US$1.040bn.
And helping that along were improving market conditions.
In a report, BAML said, “A strong rebound in risk assets this week has largely reversed the HY spread widening from last week, bringing us back to 400bps.”
Among positive developments, BAML said, “The macro data has improved somewhat, with both retail sales and durable goods orders released earlier this week and showing a rebound from the weak readings around year-end.”
“Further on the list of positive developments, more CCC issuers have been able to access the primary market in recent weeks, with cumulative YTD volume now standing at $8.3bn from seven separate HY CCCs placements.”
And what a difference a few weeks makes for an attitude adjustment.
The change of tone around the BBB sector is moving in a more positive direction.
Goldman Sachs noted in a report that “over US$63bn of BBB bonds have been upgraded into the A/AA buckets so far this year, driven by US Banks.”
And in high-yield, Goldman said “the momentum has also been positive - US$22 bn of ‘rising star’ debt has transitioned to IG year-to-date – the highest quarterly amount since 3Q 2016.”
“This positive ratings momentum will likely further ease concerns over downgrade risk, particularly vis-à-vis BBB-rated credits.”
HIGH GRADE
JP Morgan is offering floating and fixed-rate notes, both four-year non-call three year maturities.
JP Morgan’s offering will push weekly supply slightly over the upper edge of expectations.
Supply is expected to come down next week to around US$20bn area.
Performance in the secondary is becoming more mixed and focused on individual credits as spreads have tightened from the recent high-grade rally.
For example, Oracle bonds are active in the secondary after the business software company reported growth in its cloud services business, but worried credit markets by hiking the dividend 26%.
Meanwhile, US banks have been active in the primary and secondary this week, even though Yankee issuance has outperformed domestics, according to a note from Goldman Sachs.
“We view the scope for sustained Yankee outperformance as limited, [because] residual political uncertainty still remains in the Euro area and we view the US growth backdrop as more supportive,” according to the report.
HIGH YIELD
The high-yield primary market is on track to post its busiest week in a year with over US$11bn expected to be priced by the end of Friday.nL1N21118C
Almost US$8.5bn has cleared the primary market so far this week with US$2.95bn of debt in the Power Solutions buyout deal still to be priced on Friday.
One new deal was also announced on Friday. Neon Holdings launched a US$410m senior secured notes due 2026 to finance the buyout of Nexeo’s plastics distribution business by One Rock Capital Holdings.
Goldman Sachs, Jefferies and Mizuho are bookrunners on the deal, which will be on roadshow through next week.
Appetite for new deals has been strong, with software firm SS&C Technologies’ 8.5 year senior unsecured deal on Thursday - upsized from US$750m to US$2bn and priced at 5.5%, at the tight end of talk - a good indicator of conditions.
Still, despite the strong week March volumes are still lagging historic trends, according to JP Morgan.
The bank said on Friday that since 2010 an average of US$38bn has been priced in what is usually the busiest month of the year for primary issuance.
STRUCTURED FINANCE
It’s been several busy weeks on the ABS supply front, with another batch of deals lining up for next week.
Of these, online car seller Carvana, is expected to sell its first rated ABS. nL8N2115G2Dunkin’ Brands also has a large coffee and donut franchises ABS in the works.
But on this Friday morning, a bit of structured finance is also behind the day’s big headlines.
Today marks the official opening of Hudson Yards, the sprawling US$25bn real estate development on Manhattan’s Far West Side.
CMBS already financed a US$1.2bn tower on the site in 2016. Developers told IFR at the time to expect more as the massive project came online.
Volkswagen, a regular ABS issuer prior to its 2015 emissions scandal, was sued yesterday by the SEC.
The regulator said the German carmaker mislead bondholders by hiding its knowledge of its emissions cheating, while continuing to sell bonds.
VW only returned to the US ABS market last June. But those bonds included no diesel vehicles. And by then, all of VW’s prior ABS had been fully repaid.
LATAM
Chile’s AES Gener ends roadshow today, topping off what has been a busy week for the Latin American primary markets.
In all, the region saw some US$5.34bn equivalent in new supply this week across different hard currencies from six borrowers.
Millicom was the latest to print a deal yesterday with a US$750m 10-year non-call five that was priced at par to yield 6.25%.
The deal was upsized from an initial US$500m and was heard garnering decent demand after was pricing was tightened about 25bp from start to finish.
“It sounds like they went for size,” said a banker away form the deal. “It was a good trade all in all.”
Indeed, the bond was one of the most heavily traded securities earlier in the session, hitting a dollar price of 101.25 by 8:30, according to MarketAxess data.
AES Gener is expected to be the next off the block, perhaps as soon as Monday, with what is expected to be a US$450m hybrid note due 2073.
Brazilian airline GOL is also marketing a rare convertible bond as it seeks to bolster its balance sheet and bring down funding costs.
EQUITIES
Dealmaking slowed this week to a dozen companies raising a combined US$3.7bn through equity and equity-linked offerings, though no IPOs.
That is about to change with apparel icon Levi Strauss & Co (US$587m) and Blackstone-backed human capital consultant Alight (US$800m) on deck for next week.
Lyft is expected to launch as early as Monday morning, followed next month by rival Uber.
Attracted by yield, investors continued to flock toward REITs and other fixed-income proxies amid a more stable interest rate environment.
GDS, a fast-growing Chinese data center REIT, tethered a US$150m investment from Ping An Insurance to a larger US$402m public stock offering.
Health Care Realty Trust, a health-care properties REIT, had little trouble with a US$102m raise despite a rapid bookbuild overnight Thursday.
Wells Fargo and BMO Capital Markets placed 3.25m new Health Care shares at US$31.42, toward the midpoint of a US$31.25-$31.55 marketing range and US$31.90 last sale.
TPG RE Finance Trust continued the flow of mortgage REIT with its US$119.4m offering, also overnight Thursday. Morgan Stanley and Citigroup offloaded their 6m-share commitment into the market at US$19.90, tight to the US$20.42 Thursday close.
Warburg Pincus cleaned out its residual stake in Triton International via a US$222m block sale last night.
Morgan Stanley reoffered the purchase of 7.1m shares at US$31.35.
Triton, a freight container company, helped facilitate the selldown by agreeing to buy back 1.5m of the shares sold from Warburg.