Only two IG deals are on tap this Monday to kick off the month of April. With that in mind, we will take a quick glance over our shoulder to the month that has passed.
Summing up March and looking ahead to April, Bank of America Merrill Lynch said in a report, “We expect technicals in the US IG corporate bond market to remain exceptionally strong in April (and on),” BAML said.
“In March, foreign buying slowed relative to the first part of the year driven by Japanese fiscal year-end and Taiwan selling. With a new fiscal year in Japan starting next week foreign buying is set to accelerate.”
US corporates ended March on Friday with the largest IG offering of the month: Broadcom’s US$11bn deal.nL1N21G1JY
That offering pushed weekly issuance to US$28.150bn and monthly issuance to US$116.275bn, according to IFR data.
Further, that deal swelled quarterly and year-to-date IG supply to US$327.743bn, but well behind the pace of US$343.222bn for the same period last year. For all of 2018, issuance was US$1.177trn.
It turns out, though, that it was lowest Q1 IG volume since 2014 and the lowest March volume since 2013.
Looking ahead to possibly beat a monthly record, the busiest April on record for IG supply was in 2018, according to IFR data, when US$118.658bn was sold.
HIGH GRADE
The market continues to digest a blockbuster five-part US$11bn bond from Broadcom on Friday.
Broadcom surprised investors with a large deal that closed out the week, month and quarter and was still able to bring in pricing tight enough to warrant a negative new issue concession on its two shorter maturity tranches, according to IFR data.
Three of the company’s bonds are among the most traded in the secondary early Monday.
The two issuers today are going long, including a 50-year US$750m note from New York Life Insurance.
NextEra Energy is tapping the bond market for the second week in a row, this time with a US$350m subordinated 60-year note.
Issuers largely held back as the US investment-grade CDX index traded at a 2019 low of 56bp, down from 59bp on Friday, according to Refinitiv data.
Still, Tencent Holdings has banks for a new issuance that will commence investor calls Tuesday.
The food and beverage M&A space looks to heat up this week as Kellogg announced plans Monday to sell snacking assets to confectionary company Ferrero for $US1.3bn.
Meanwhile, Mondelez is also in advanced talks to acquire international snacking brands from Campbell’s for around US$2.5bn.
HIGH YIELD
There is just one new announcement so far this morning in the US high-yield market from Canadian oilfield services company Ensign Drilling, which is looking to sell a US$700m senior note offering due 2024.
But the main attention this week is likely to be on the expected two-part US$2.125bn dividend recapitalization deal from office supply company Staples. nL1N21G1CC
The deal - which will finance a US$1bn dividend payment to Staples’ sponsors, led by private equity firm Sycamore Partners - could be a test of risk appetite following a mixed couple of weeks for the primary as some deals have struggled.
“New issuance is not where it was two years ago, and at the same time fund flows have been positive the last few weeks. That’s created a technical positive,” said Kevin Matthews, global head of high yield at Aviva Investors.
“Having said that the market has been disciplined in what people will underwrite. Deals that have struggled have done so for good reasons.”
STRUCTURED FINANCE
The stalling of a Fed rate-driven rally in securitized bond spreads has left the market finely balanced as it starts the second quarter, according to Bank of America Merrill Lynch analysts.
“On the positive side, lower interest rates, brought on by the furious end of quarter bond market rally, are an unequivocal positive for both residential and commercial mortgage credit and, by extension, the broader economy,” they wrote on Friday.
“On the negative side, valuations (spreads have already significantly retraced) and global macro risk factors, including Brexit, the ongoing US-China trade war and the resultant economic fallout from both, sustain potential for a significant risk-off event.”
A handful of new deals were launched on Monday, including a US$193m auto loan deal from First Investors, FIAOT 2019-1.Wells Fargo is lead underwriter on the deal.
Ford meanwhile has mandated Barclays, Credit Agricole and Lloyds to arrange US$1bn of auto floorplan notes, split into a US$785m 2019-1 and a US$262m 2019-2 series.
RBC was also mandated as sole lead on the $208m New Hampshire Higher Education Loan Corporation (EDVES) 2019-A private student loan transaction, which is expected to be priced midweek.
LATAM
The LatAm primaries are off to a strong start to the week, with Mexico finally pulling the trigger on a euro deal and Brazilian beef company JBS moving forward with a dual-tranche offering.
Mexico has launched a EUR1.5bn seven-year at MS+145bp and EUR1bn 20-year at MS+195bp.
The deal marks the country’s first euro trade since January last year and the first in this currency under the current president Andres Manual Lopez Obrador.
Protein credit JBS, meanwhile, is coming with a dual-tranche deal representing both its Brazilian and US operations.
JBS USA is holding global investor calls at 11am today to market a new US$650m 10-year, while JBS Investments has set IPTs of 101.00 area on a tap of the 7% 2026s, which are guaranteed by JBS SA.
Proceeds are going to fund a tender offer for the existing 7.25% 2021s.
The deal comes after JBS SA management said last week that it expects the meat company to deliver stronger earnings this year thanks to strong demand from the US, Australia and China.
EQUITIES
Lyft’s US$2.7bn IPO last week has opened the door for technology IPOs in the second quarter.
PagerDuty, a software company that helps IT help desks manage their workflows, Israeli cybersecurity company Tufin Software Technologies both launched IPOs this morning, and specialty insurer Palomar Holdings filed an amended prospectus for its pending IPO that provided interim first quarter results.
Morgan Stanley, JP Morgan, RBC Capital Markets and Allen & Co are leading PagerDuty’s offering of 9.7m new shares at US$15-$17, to target a market capitalization of US$1.6bn. They expect to price the deal after the market close April 10.
That same evening, JP Morgan, Barclays and Jefferies expect to price Tufin Software’s offering, structured as 7.7m new shares being marketed at US$12-$14.
StoneCo, a Brazilian payments processor, is looking to cash in on surging investor interest in LatAm fintech with US$735m, all-secondary stock sale.
GoldmanSachs, JP Morgan, Morgan Stanley and Citigroup are conducting three full days of marketing in support of 17.95m shares, about 10-days’ trading volume, for pricing post-close Wednesday.
Qutoutiao, a new aggregator backed by Tencent, launched a first-time follow-on late Friday targeting US$100m. Citigroup and Deutsche Bank are looking to place 8.5m shares ADSs, comprised of 1.05m primary and 7.45m secondary, after the close Tuesday.