Echoing Tuesday’s deluge, the IG primary again will host another nine deals on Wednesday, with a variety of issuers joining the mix, including FIGs.
A positive tone Wednesday morning greets another day following a 512 point rise for the Dow yesterday.
And while the trade issues with China and Mexico remain unresolved, the Fed’s rate thinking is a bit more transparent to investors and issuers. Hence the rocketing stock market.
Yesterday, Federal Reserve Chairman Jerome Powell said he was willing act appropriately to sustain economic expansion, which many interpreted as a dovish stance. Some in the market are betting a rate cut is possible.
Issuers are taking advantage of the good mood and low rates - the US Treasury 10-year note yield is hovering around 2.10%.
HIGH GRADE
Nine offerings are hitting the market today led by a pack of financials, including Ares Capital, Morgan Stanley, Allstate, WEA Finance, and TD Bank.
Also on the roster are healthcare credit HCA, E&P name Apache, motion and control technology company Parker Hannifin, and Russian steel supplier MMK.
This comes as CDX IG 31 is trading some 4bp tighter today at 58bp, according to Refinitiv data, while most corporate bond spreads are inching tighter as well.
Despite the ping-pong-like volatility, the investment-grade market has seen a robust start to the week with seven issuers raising US$6.65bn on Tuesday.
Order books grew substantially yesterday to as much as three times covered on some bonds — a stronger showing compared with the prior week when issuers were struggling to hit two times covered.
However, new issue concessions remained elevated as issuers such as Santander Holdings USA (Baa3/BBB+/BBB+) and Duke Energy (Baa1/BBB+/BBB+) drew double digit premiums.
Jason Shoup, head of global credit strategy for Legal & General Investment Management America, said those elevated concessions are going to be common place for Triple-B issuers so long as the volatility persists.
“It’s definitely a correction in credit,” he said.
“If you put it in the context of the really terrible fourth quarter of last year where we widened 50bp and then rallied back upwards of 40bp this year, we’ve given back half of that over the course of May.”
HIGH YIELD
The sudden turnaround in market tone has flung open the gates to the primary market for junk credits on Wednesday, with some high-profile names looking to price bonds.
L-Brands, the owner Victoria’s Secret and Bath & Body Works, is out with a US$500m 10-year non-call five with initial price thoughts set at mid to high 7%.
Sirius XM is also looking to raise US$1bn to refinance debt with a new 2029, while split rated HCA Healthcare is out with a secured note offering, which should see a bid from both high-grade and high-yield accounts.
This comes after average high-yield spreads tightened 17bp yesterday, according to ICE BAML data, and it looks like the market is in for another decent day as stock markets head higher in morning trading.
“The strong rebound yesterday has driven inflows back into ETFs and we are opening up with a continued bid for risk, giving issuers comfort to price new deals,” a trader said.
Wednesday’s deals add to an already growing pipeline with Multi-Color readying a US$1.39bn dual-tranche offering, Stericycle a US$500m five-year non-call two and Grubhub a debut US$400m eight-year non-call three.
STRUCTURED FINANCE
New ABS deals are having a tougher time in the primary market of late with interest rate volatility keeping some short dated bond buyers on the sidelines.
Wireless telecoms firm Verizon and auto lender Ally both widened pricing from initial talk on their deals yesterday.
Senior tranches that offer slim spreads are facing softer conditions after a sharp rally in Treasury rates as investors fret about a snap back in rates.
Subordinated tranches that offer wider spreads are seeing better demand, according to sources.
The senior tranche of Verizon’s US$1.12bn handset receivables deal was widened from initial talk of 30bp over swaps to price at 45bp over.
While the senior tranche on Ally’s latest auto ABS was widened from guidance of 22bp area to price at 25bp.
Angelo Gordon priced a debut RMBS on Tuesday, joining the ranks of new issuers in the expanding non-QM RMBS market.
Burger chain Wendy’s said on Wednesday it would launch a new
US$1bn whole business securitization to refinance its outstanding WBS debt sold in 2015 and 2018.
Guggenheim and Citi have been mandated as joint leads on the deal, which is being pre-marketed to investors.
LATAM
Mineral Logistics currently remains the sole issuer in the pipeline as trade concerns continue to roil the markets.
Corporacion Navios, the owner of the iron ore terminal facility in Uruguay, is working with Citigroup and Morgan Stanley on a US$483m 18.2-year senior secured bond.
Issuers have tread lightly as ongoing trade negotiations with Mexico and China continue.
“It looks like things are holding up today off the back of Powell’s news. But there’s still a lot of uncertainty regarding trade and what the US does next,” said a syndicate banker.
“The market will be very yield-focused as rates continue to drop,” said another syndicate banker.
Elsewhere, LatAm-focused Gran Tierra Energy has approved an offer to purchase all of its outstanding 5% 2021 convertible senior notes.
While Mexican financial firm Unifin Financiera also announced the completion of consent solicitation of its international senior notes.
The consent was for the company’s 7.250% 2023 notes, 7% 2025 senior notes and 7.375% 20026 notes.
EQUITIES
The S&P 500 rose 2.1% yesterday on the wings of a dovish Federal Reserve, providing a positive backdrop for overnight stock offerings and new issues.
The newly robust market conditions are providing a positive backdrop for this week’s two IPOs, Revolve and GSX Techedu, which are both well over-subscribed.
Credit Suisse and Deutsche Bank will stop taking orders for GSX Techedu’s up to US$227m IPO at noon today and price after tonight’s close.
Morgan Stanley, Credit Suisse, Bank of America Merrill Lynch, Barclays and Jefferies will close the books on Revolve’s up to US$211 at 4:00pm this afternoon and price after the market close Thursday.
Meanwhile, orders are already overflowing for cybersecurity play CrowdStrike ahead of its up to US$414m debut next week.
Last night saw about US$1.8bn of follow-on stock offerings launched, including an opportunistic block sale by AXA SA of AXA Equitable, its former US life insurance arm.
Morgan Stanley and Barclays teamed up to purchase 40m AXA Equitable shares or about 8% of the company.
The banks reoffered them to investors at US$20.95, a nickel below the US$21.00 close and putting some US$830m into the coffers of AXA.
Embattled breast implant maker Sientra recapitalized through an upsized US$100m equity raise.
Stifel, William Blair and SVB Leerink placed 17.4m shares at US$5.75 each, a 6.2% discount to the last sale but after a 12.9% run-up in the stock over the one day marketing period Tuesday.
Sientra has seen its shares collapse some 75% after the SEC brought fraud charges against Sientra founder and former CEO Hani Zeini last September.