Five IG deals are expected in the primary market on Tuesday, while the HY sector saw more announcements.
The US stock market is still roaming in negative territory after a better-than-expected jobs report last Friday lowered expectations of a Fed rate cut later this month.
And US Treasuries hover around levels seen on Monday, with no jarring moves in either direction.
Corporate bond spreads leaked slightly wider on Monday but investors are still eager for corporate debt, as many of the IG deals priced on Monday saw solid demand.
Monday saw six deals totaling US$11.15bn, pushing 2019 year-to-date issuance to US$612.918bn, well behind the pace for the same period in 2018, which totaled US$690.416bn.
There has been an increase in new issue concessions, however, as the Treasury market pushed up yields after Friday’s jobs report, and credit spreads edged out.
“The average new issue concession increased to 10.5bps today from 6.8bps two weeks ago, and the break performance weakened to 2.2bps tighter today from 3.7bps tighter two weeks ago,” Bank of America Merrill Lynch said in a report.
HIGH GRADE
Despite corporate blackouts and multiple Federal Reserve speeches this week, issuers are bringing a healthy supply to the primary market.
At least five more borrowers announced deals on Tuesday including bonds from New York Life Global Funding, American Honda Finance, Royal Bank of Canada, Mizuho and Korean Gas.
That supply follows six issuers that raised US$11.15bn in the primary on Monday as syndicates speed to weekly estimates of US$15bn-US$20bn.
This is a quiet week for corporates in blackout, but for banks and other institutions that do not have those restrictions this is a good time to come to market before the big US banks start announcing earnings next week, one FIG syndicate told IFR.
New issue performance this week is especially important given the market consensus is that second quarter earnings will decline 1.5% year over year, according to BAML.
However, actual results typically surprise to the upside, BAML notes.
Supply is also being front loaded ahead of Federal Reserve Chairman Jerome Powell’s comments before the House and Senate later this week.
Market participants will be looking for signs of a 25bp rate cut this month, especially now that a 50bp cut is considered to be off the table following the positive jobs report.
HIGH YIELD
US broadcaster Sinclair announced US$4.875bn of new high yield bonds on Tuesday, as part of the US$8.2bn of debt the firm is looking to raise to finance the acquisition of Disney’s regional sports networks.
The offering, which is split into a US$2.55bn 7NC3 senior secured and a US$2.325bn senior note, would be the biggest offering in the high yield market in the year to date.
Lead left JP Morgan and 11 other lead banks are taking the blockbuster deal on a roadshow starting Wednesday with pricing expected on July 19.
S&P assigned a BB rating to the senior secured notes and a B rating to the senior unsecured.
The rating agency also changed its outlook on the firm’s BB- issuer rating to positive from stable to reflect its belief that the company can bring leverage under 4.5 times over the next year.
Casino operator Melco Resorts Finance (rated Ba2/BB) also announced a new US$500m 8NC3 senior note via Deutsche Bank and ANZ, which is expected to price tomorrow.
Double B debt in particular is trading strongly on falling rates, outperforming the rest of the high yield market according to JP Morgan analysts on Tuesday. Average Double-B yields are down 165bp in 2019 to 4.65%, according to the analysts.
STRUCTURED FINANCE
Activity in the structured finance space is picking up with a handful of RMBS and one new conduit CMBS announced on Monday, as well as six 15G filings for new ABS joining the deal pipeline.
Redwood Trust and Invictus Capital Partners have mandated leads for “expanded prime” and non-QM mortgage bonds, respectively. Both deals are expected to be priced next week.
CoreVest American Finance also mandated Morgan Stanley for a new single-family rental ABS. Guidance on the A class has been given at IS+105bp-110bp.
Mortgage lender Stearns Holdings filed for Chapter 11 bankruptcy protection on Monday night.
The firm has agreed a restructuring plan with majority equity holder Blackstone, who will inject US$60m of new money investment, US$35m of debtor-in-possession financing, and is providing a limited first loss guarantee on US$1.5bn of warehouse commitments.
Demand for higher yields has compressed the spreads between senior and subordinated ABS bonds, according to a report by Wells Fargo head of consumer ABS research John McElravey on Monday.
Interest rate changes are having the most impact on secondary market moves, absent any significant credit events.
Solid credit trends and robust structural protections continue to underpin investor support for asset classes such as subprime auto ABS, he said.
LATAM
The pipeline out of LatAm keeps growing strong, as issuers jump to take advantage of favorable market conditions.
One Brazilian issuer, pulp and paper company Klabin, re-tapped its 5.75% 2029 notes for $250m on Monday. And three Mexican issuers joined the pipeline with upcoming deals.
“Everybody with a need to tap the market should be looking to issue,” said a syndicate banker.
Mexican Reit Terrafina, leasing company Docuformas and Unifin Financiera, also a Mexican leasing company, are due to conduct roadshows this week and next.
“I would definitely expect the flow to keep increasing,” added the banker, noting there’s a bit of time before the August summer lull.
Other deals in the pipeline include Colombian utility company Empresas Publicas de Medellin (EPM), Peruvian solar energy and infrastructure company Ergon Peru, and Brazilian steel-producer Usiminas.
EQUITIES
AssetMark Financial, a financial advice platform with US$50bn of assets, capped off a busy start to the second half for US ECM, launching a US$262.5m NYSE IPO late Monday.
AssetMark is one of 10 IPOs that are now on the road and looking to price next week as issuers rush to price ahead of the summer slowdown.
The IPO will see AssetMark look to sell 6.25m shares and its controlling shareholder, China’s Huatai Investment, the same amount at US$19-$21 each in a deal set to price July 17.
Goldman Sachs and JP Morgan lead a seven-firm underwriting syndicate.
This morning also saw Danish biotech Genmab (July 17) and Brazilian medical education provider Afya (July 18) launch US IPOs.
The biggest IPO now on the road is the US$900m-plus China-to-US (Nasdaq) listing of DouYu International, a game-centric live streaming platform in China and pioneer in e-sports whose stated mission is to “make the world a fun place”.
With earnings blackouts in effect for many companies, follow-on issuance is likely to remain light for the time being, though last night saw a handful of deals.
Barclays reoffered 8m shares of oilfield services provider Liberty Oilfield Services at US$14.75 each, a 6% discount to last sale for gross proceeds of US$118m, the first block trade for the second half.
Business development company New Mountain Finance, a regular visitor to ECM, also raised US$82.1m of primary capital from the sale of 6m shares at US$13.68 fixed, a 2.2% discount to last sale, via a Wells Fargo-led syndicate.