One offering will end the week for IG primary, which hit its volume forecast.
Five deals totalling US$5.7bn were priced on Thursday, bringing weekly issuance to US$21.7bn. That will reach US$22.2bn on Friday when the lone issuer, Paccar, prices.
Funds flows moved to a trickle this week.
For the week ended May 1, Lipper US Fund Flows reported the that investment-grade funds net inflow was US$374.486m and the high-yield funds net inflow was US$21.266m
Bank of America Merrill Lynch observed this about the strength of flows. “US, fund and ETF outflows from stocks moderated this past week ending on May 1st, while inflows to bonds declined.”
“For fixed income, stronger flows for high yield and global EM were not enough to offset weaker flows for high grade, government bonds and munis.”
The markets as a whole got a boost from Friday’s jobs report, which reported 263,000 jobs created in April, higher than expected.
That helped investors to understand the Fed will stand pat for the moment.
Charlie Ripley, senior investment strategist for Allianz Investment Management, said, “The report reiterates what [Federal Reserve Chairman Jerome] Powell’s message was on Wednesday in that the economy is in good shape, inflation is low, and there is no need to adjust the main policy rate at this time.”
Powell spoke after a two-day Fed meeting, which left rates unchanged.
“Overall, today’s labor market report extends the runway for the Fed to remain patient when it comes to changing monetary policy,” Ripley said.
HIGH GRADE
Manufacturer of commercial vehicles Paccar is the lone issuer in the primary Friday with a US$500m three-year note.
Next week’s volume is expected to double to US$40bn-US$45bn on the back of Bristol-Myers Squibb’s jumbo bond that could add some US$21bn to the supply.
Some of the primary deals from this week - such as Ford, Northern Trust and Starbucks - are widening in the secondary on Friday, according to MarketAxess.
But one banker chalked it up to a softer tone, and predicts it will pick up again next week with a surging primary.
AT&T also announced a US$14.3bn bond exchange on 26 series of Time Warner notes, which sent the company’s bonds wider by as much as 19bp.
After a long bidding process, Sinclair Broadcast Group won a deal valued at US$10bn to acquire 21 of Walt Disney’s Regional Sports Network stations. Separately, Sinclair partnered with the Yankees and Amazon to purchase New York’s YES Network for US$3.45bn.
The sale was required by regulators under the terms of Disney’s acquisition of Twenty-First Century Fox.
Disney hoped to raise between US$16bn-US$20bn, but only gained a total of US$13.45bn. The media company may look to tap the bond market to make up for any lack of funding, IFR has previously reported.
HIGH YIELD
Cable and telecom company Altice is expected to price a €2.8bn-equivalent eight-year non-call three unsecured issue on Friday, which will round out a busy week for US high-yield.
Thursday was especially active, with four deals getting over the line, and taking the week’s volumes so far to US$2.925bn, according to IFR data.
Altice is tapping both the euro and the US dollar market for its deal, which will partly refinance its US$2.9bn and €2.075bn bonds maturing 2022. Price talk is 8%-8.25% on the euros, and 10.50% area on the US dollars. The bonds are rated Caa1/B-.
As for the rest of May, analysts are expecting a fairly steady month for supply - in line with what we have been seeing in prior months this year.
“We are looking at May as one of the seasonally strongest months for issuance, with our models pointing to US$18.4bn in expected volume,” BAML analysts said in a note.
Supply has averaged US$19.6bn in the first four months of the year, according to IFR data.
STRUCTURED FINANCE
Pricing activity in the structured finance market was skewed to the early part of this week, with little action since US$4.7bn of auto ABS paper was snapped up by investors on Tuesday.
All four deals were able to price inside guidance.
Since then, only a US$1.15bn single-borrower CMBS deal, sponsored by Blackstone, has priced.
Freedom Mortgage Corp is expected to price its US$450m mortgage servicing rights deal on Friday morning. The five-year notes have guidance of 275bp-280bp over interpolated swaps. Credit Suisse is sole bookrunner.
Next week, World Omni Financial and DriveTime Automobile Group will be looking to follow on from this week’s well-received auto deals. The issuers have mandated leads for prime and sub-prime deals, respectively.
In the CMBS market, two single-asset deals, a conduit offering led by Morgan Stanley and Cantor, and a CRE CLO from LoanCore have filed 15G documents with the SEC and are yet to be announced.
And in RMBS, Freddie Mac is expected to announce a new seasoned risk transfer deal, and Arroyo Mortgage Acquisition Co III, a subsidiary of Western Asset Management Company, has filed documents for a non-agency RMBS.
LATAM
The week wraps up with two issuers raising US$1.45bn in the primary market.
Chilean miner SQM and Brazilian meat processor Marfrig sold a 10-year and a 7NC3 bond yesterday respectively.
SQM raised US$450m after pricing an upsized US$450m 4.25% 2029 bond to yield 4.252% or 170bp over US Treasuries after garnering an order book of around US$2.7bn.
Marfrig, meanwhile, saw demand hit around US$2.3bn before its US$1bn deal was priced to yield 7.25%, in line with guidance of 7.375% area (+/-12.5bp).
This comes after emerging market debt funds suffered some US$168.383m of outflows for the week ending May 1, according to Lipper. Yet while hard currency funds saw outflows of US$214.866m, EM local currency funds took in US$46.703m.
EQUITIES
Tesla bulls and bears both got a jolt in the form of $2.35bn, combo equity-linked raise. While expected, the financing was smallish relative to ongoing losses, accelerating capex and dwindling liquidity.
Predictably, the electric carmaker funded through a combination of equity and convertible debt, reprising a favored asset class that embraces volatility that is ever-present to Tesla.
Tesla sourced US$1.6bn of the new funding from the sale of a five-year CB and just US$750m from common stock.
Goldman Sachs and Citigroup, the lead joint-bookrunning managers, placed roughly 3.1m shares at $243.00, a 0.5% discount, and the CB at a 2% coupon and 27.5% premium to reference on the common, the investor-friendly ends of 1.5%–2% and 27.5%–32.5% talk.
The common and CB were upsized from 2.7m and $1.35bn.
This week’s IPOs are delivering big gains.
Beyond Meat sizzled on its debut, closing first-day trading Thursday at US$65.75, a 163% gain from the US$25.00 pricing on the fake meatmaker’s IPO.
TransMedics Group’s IPO was another win for the red hot medical technology space. The stock surged 46% on its first day of trading Thursday.
SciPlay, the online gaming platform of Scientific Games International, is slotted to debut on Nasdaq at 10:00am this morning under the symbol “SCPL”.
SciPlay’s 22m-share IPO priced last night at US$16.00, the high-end of a US$14-$16 range marketing range.
Bank of America Merrill Lynch, JP Morgan and Deutsche Bank were joint bookrunners.
Avantor, a PE-backed lab equipment supplier, this morning launched its up to up to US$3.23bn IPO. Avantor is also selling a US$500m mandatory CB concurrently with the combined proceeds earmarked to redeem preferred stock and repay debt.
Goldman Sachs and JP Morgan lead a syndicate of 26 banks in the marketing of 154m shares at US$18-$21 each for pricing on Thursday, May 16. Price talk on the MCB has not been set.
Avantor’s combo-financing is scheduled to price after the market close Thursday, May 16.
Avantor was formed in a merger with VWR, a lab supply company that was taken private two years ago by New Mountain Capital and Goldman Sachs for US$6.6bn.