We start the month of May with just one deal in the IG primary.
On Tuesday, seven IG issuers sold US$8.800bn, pushing weekly issuance to US$15.500bn. And thus, we close April with IG volume of US$91.650bn, slightly exceeding forecasts.
In high yield, 31 tranches totaling US$17.63bn were priced in the month of April.
Looking ahead to May, Bank of America Merrill Lynch said it sees what it calls breakeven IG supply for the month - the amount of issuance the market can absorb without wider spreads - reaching US$160bn.
IFR’s forecast, based on a dealer survey, is for around US$125bn of IG supply for May. According to IFR data, the busiest May was in 2016, with US$177.424bn.
BAML said that there are six large deals with greater than US$10bn enterprise value currently on the list of M&A deals with issuance implications for the high grade market.
“From that list we think Bristol-Meyers Squibb vs. Celgene and IBM vs. Red Hat could potentially go in May as well,” BAML said. “The wildcard for May is whether T-Mobile vs. Sprint comes as well.”
Further on M&A, BAML said that April North American M&A announced volume came in at US$179bn, flat to the prior month.
“The pipeline value of announced deals with potential high-grade funding implications increased to US$406bn currently from US$334bn at the end of March,” BAML said.
HIGH GRADE
Insurance company CNA Financial is the lone borrower in the market.
The company announced a US$500m 10-year note while other issuers avoided the primary given that international investors - a big source of demand - were idle for the May Day holiday and the US Federal Reserve is expected to give its latest rate guidance later today.
T-Mobile asked Barclays, Deutsche Bank and Goldman Sachs to arrange fixed-income investor meetings in the US and Europe for the coming week regarding its acquisition of Sprint.
Although both companies are rated in the high-yield band, the issuance could be secured to give it an investment-grade rating.
But a person close to the trade said this is a non-deal road show and that new bond issuance is not expected until the company receives a green light from regulators.
On the secondary, CVS bonds are tightening as much as 25bp, according to MarketAxess, following positive earnings that brought US$61.65bn in revenue compared with expectations of US$60.39bn.
Investors seem pleased that the pharmacy acquisition is starting to produce results in earnings and that the company is filling more expensive prescriptions.
HIGH YIELD
A broad range of issuers are tapping the high-yield market this week amid good conditions.
Just one deal has priced so far this week - a US$750m issue for iron ore mining company Cleveland-Cliffs on Monday - but several issuers are roadshowing.
“The primary is wide open – that’s the theme,” said one high-yield investor.
“It’s some refinancings, some Triple Cs but a number of higher quality issuers as well. It’s not surprising given the market backdrop – demand is very strong and issuance is still down year over year.”
Supply is running at US$78.435bn so far this year, just below the US$79.975bn in the same period a year ago, according to IFR data. But that’s not been enough to satisfy demand, and spreads continue to tighten.
Even Triple C bonds - which have been underperforming on a risk adjusted basis - have caught a bid. Triple C returned 2.274% in April, while Single Bs returned 1.514% and Double Bs returned 1.081%, according to ICE BAML data.
“Triple Cs have started to outperform,” said Andrew Feltus, co-director of high-yield at Amundi Pioneer. However, he warned that investors do need to pick their spots.
“There may be some diamonds in Triple C, but it’s not a great place to be,” said Feltus.
STRUCTURED FINANCE
Four auto ABS deals totaling US$4.7bn were priced in the structured finance market on Tuesday with all four able to bring pricing inside guidance.
The deals included prime auto loan paper from Fifth Third and Toyota Motor Corp, as well as auto lease deals from General Motors and sub-prime auto paper from Global Lending Services.
A further five ABS deals have been registered with the Securities Exchange Commission although they have yet to be officially launched. These include dealer floorplan ABS from Ally Financial and container lease ABS from Seacube Container Leasing.
CMBS is also working through the primary market with Wells Fargo pricing its latest US$868.8m conduit deal, WFCM 2019-C50, at IS+86bp, in line with guidance. JP Morgan also priced a US$115.7m single-borrower CMBS, JPM 2019-ICON UES.
The agency credit-risk transfer market continues to expand, with Fannie Mae saying on an earnings call Wednesday that it was considering potentially structuring risk-transfer trades in the capital markets to shift the risk on its multifamily portfolio, similar to its CAS single-family mortgage deals.
So far the agency has only transferred multifamily risk by sharing risk at the time of origination with mortgage lenders, as well as through the reinsurance market with its CIRT transactions.
LATAM
No issuance is expected today as some markets in LatAm are closed for the May Day holiday.
Two issuers, Brazilian food processing Marfrig Global Foods (Marfrig) and Chilean lithium producer Sociedad Quimica y Minera (SQM), are wrapping up roadshows Wednesday and expect to price deals as soon as Thursday.
Luxembourg-based telcom Millicom, which has some operations in LatAm, has also announced the issuance of a 5-year Swedish Krona benchmark bond. DNB Markets and Nordea are mandated as joint bookrunners on the transaction.
“I expect issuance to continue from highly-rated issuers,” said a syndicate banker, adding he expects an uptick of activity before the mid-May blackout period.
EQUITIES
ECM bankers have flipped the script on the old investment credo “sell in May”.
There are currently 19 companies on the road marketing IPOs that targeting roughly US$11.7bn.
Seasoned companies are beginning to emerge from quarterly earnings blackouts, adding to the already torrid ECM calendar.
General Electric, which announced blowout results pre-open Tuesday, last night launched an all-secondary stock sale of Wabtec that could net the industrial conglomerate in excess of US$1bn.
GE is planning to sell 12.5m Wabtec shares on the base deal and as many as 14.375m including the overallotment option, reducing its stake from 25% to as low as 16.4%.
Wabtec shares finished yesterday’s session at US$74.07.
Morgan Stanley and Goldman Sachs, along with Bank of America Merrill Lynch and Citigroup, are marketing the Wabtec selldown throughout today’s session for post-close.
Bioprocessing company Repligen last night raised US$175m through a follow-on stock to fund a recently agreed to acquisition.
JP Morgan and Stephens priced 2.73m shares at US$64.00, a 5% discount to last sale after marketing for one day towards a fixed proceeds amount.
Repligen is using proceeds to help fund the purchase analytics company C-Technologies for US$240m, including US$192m of cash.