IFR SNAPSHOT-Monday's IG primary starts with a bang

7 min read
EMEA
John J. Doran

Eight deals are expected to price in the IG primary on Monday as issuers continue to push out deals to hungry investors.

This deluge of offerings is a good start to bringing primary volumes closer to a weekly supply forecast of around US$20bn

It is also the week leading up to the Memorial Day holiday -the unofficial start of the summer season in the US - so bankers and issuers want to get as many deals done before everyone heads to the beach.

And investors’ appetites make sense if you look at a recent survey of investors.

Bank of America Merrill Lynch said in its May 2019 US Credit Investor Survey that, “Since March HG investors continued to add to positions as now a net 43% report being overweight, up from 38%. In fact, only 9% report being underweight.”

As for high yield, BAML said, “On the HY side in contrast positioning is back to neutral on average, erasing a small overweight. In fact, responses are very symmetric with 1/2 of HY investors being neutral, 1/4 overweight/underweight.”

HIGH GRADE

At least eight issuers announced deals Monday mostly from utilities and banks.

The issuers include New Jersey and Texas-based NRG Energy, Dallas-based Oncor Electric Delivery, and Ohio Power,

Banks continue their run in the primary with Charles Schwab, Goldman Sachs, Wells Fargo and Bank of America all out with new deals.

The privately held food, agriculture and financial products company Cargill is also in the market.

Equity and credit markets remain volatile amid continued US-China trade war discussions, but like the start of the year, issuers are getting comfortable again issuing in a less than ideal market, one syndicate banker told IFR.

“Last week was a surprisingly good week even though there was so much volatility in the start of the week,” the banker said.

Separately, the M&A pipeline is looking brighter this morning as US Federal Communications Commission Chairman Ajit Pai said he will recommend approval of T-Mobile and Sprint’s US$26.5bn merger after the companies agree to asset sales and rural service guarantees, according to reports.

Both companies are rated as high yield, but T-Mobile is expected to issue new secured debt in part to refinance its high yield outstandings into the investment grade space.

HIGH YIELD

IAA Spinco became the latest issuer to announce in what is expected to be a busy week for the US high-yield market.

This comes ahead of another four trades - El Dorado Gold, Jefferies Finance, Neiman Marcus and CNG Holdings - which could all price this week.

Even so, tensions between China and the US continue to weigh on sentiment after the Trump administration’s crackdown on Huawei Technologies hit tech stocks this morning.

Average high-yield spreads were also wider by 25bp over the past 10 days ending on Friday, according to ICE BAML data, after high-yield debt funds saw US$2.572bn head for the exits last week.

IAA, the salvage auction unit of KAR Auction Services, is readying US$400m senior note due 2027 as it prepares to be spun off.

Proceeds from the bond are going toward paying a special dividend to KAR and will be kept in escrow until conditions for the spin-off are satisfied.

Elsewhere American Midstream Partners is soliciting consents from holders of its 8.5% 2021s as it looks to eliminate requirements to file with the SEC after its merger with ArcLight.

STRUCTURED FINANCE

The ABS market is off to a busy start on Monday after more than US$6.6bn of deals were priced last week.

Social Finance is expected to price a US$549m consumer loan deal SCLP 2019-3 on Tuesday or Wednesday. Morgan Stanley is structuring the deal with Citi, Deutsche Bank, Goldman Sachs and RBC as joint bookrunners.

Honda and Capital One both launched prime auto deals on Monday which are both expected to be priced this week.

Dine Brands, the owner of restaurant chains IHOP and Applebee’s, mandated Barclays and Credit Suisse for a US$1.3bn whole business securitization on Monday. This will refinance the borrower’s existing WBS which was sold in 2014. The deal is expected to be priced in the week commencing May 28.

Last week’s deals went smoothly with most able to price through guidance level with moderate levels of oversubscription, said JP Morgan analysts on Friday.

“The healthy investor appetite and firm spreads bode well for the full pipeline of transactions on deck,” they said. “ABS investors continue to maintain positive sentiment, particularly in defensive short paper given the currently flat term structure.”

LATAM

Fresh off its dollar-market comeback in April, Mexican telecom America Movil has announced plans to meet with inventors ahead of issuing a euro-denominated note.

Barclays will lead the deal, which will be marketed to investors in Europe from today until Friday May 24.

Gran Tierra is also expected to price a 2027 144A/Reg S bond this week, potentially as soon as today.

The note, expected to price last week, was delayed potentially due to volatile market conditions. Credit Suisse and Bank of America are working on deal.

“I think there will be a calendar developing in the next few weeks. Right now deals can get done but we’re waiting (on market stability),” said a syndicate banker.

EQUITIES

There are signs of deal fatigue in the US IPO market after flood of US$1.0bn-plus IPOs (Lyft, Pinterest, Uber Technologies and Avantor) in recent weeks.

This week leading into the Memorial Day break features only four IPOs, including three biotechs, targeting US$930m.

Rattler Midstream, a carve-out of Permian Basin E&P Diamondback Energy, is the largest deal on the docket at US$633m and is expected to price on Wednesday night.

The only new addition to the near-term calendar is a US$100m follow-on offering from Lovesac, a furniture retailer that went public last June.

Stifel, Canaccord Genuity and Roth Capital Partners are marketing 2.5m shares for pricing on Wednesday morning ahead of the market open - in compliance with the 48-hour viewing period of the offer document that the SEC imposes on recent IPOs.

Lovesac stock price has more than doubled since it went public at US$16. The offering gives some of the company’s insiders a way take profits near a recent price of US$40.74.

The offering is a mix of 750,000 primary shares and 1.75m secondary shares. The secondary allotment includes 1.56m shares from Lovesac’s chairman Andrew Heyer.