The torrid IG issuance pace which generated 22 deals so far this week slowed down on Thursday, with just two offerings slated for the primary market.
Yesterday, 8 deals totaling US$5.7bn were sold, pushing weekly volume to US$27.115bn and monthly supply to US$51.725bn, according to IFR data. Year-to-date issuance stands at US$575.018bn, well behind the pace of US$628.799bn sold in the same period last year, according to IFR.
Markets are once again stable and welcoming with US stocks opening in positive territory this morning and US Treasury yields lower.
“Bonds issued on Monday and Tuesday of this week are currently trading 1bps tighter to their new issue levels,” Bank of America Merrill Lynch said in a note on Wednesday evening.
Investors are taking comfort in the view that the Fed will cut rates this year.
HIGH GRADE
Just two investment-grade issuers announced new deals in the primary Thursday.
It was a mixed market for issuers on Wednesday, with several lesser known low Triple B companies tapping the market and struggling to build books and tighten pricing.
For example, Realty Income priced a US$500m bond that garnered US$700m in orders after giving up 13bp of new issue concessions.
Others, such as Pentair Finance and PartnerRe Finance B, were such infrequent issuers that there was not enough liquidity to calculate a proper concession.
“Some deals didn’t move much from IPTs and others got stuck at guidance,” one syndicate said.
However a few deals did very well. Lloyds Banking Group priced a US$500m bond that saw an outpouring of investor demand as books climbed to US$6.4bn, allowing the UK bank to tighten spreads by 50bp.
As for today, Barclays decided to jump into the primary today with a Tier 2 11-year non call, 10-year note starting at initial price thoughts of 300bp-312.5bp over Treasuries.
At those spreads, Barclays is offering nearly 100bp of new issue concessions over its secondary bonds in order to get a deal done in the volatile market and push through an unconventional Tier 2 structure, according to one banker away from the trade.
Fresenius Medical Care US Finance III is the other issuer in the market today with a US$400m 10-year note.
HIGH YIELD
The primary market for US junk bonds looks set for another active day after four issuers raised a combined US$2.4bn yesterday.
On the roster today are US Renal Care, which is coming with a US$505m eight-year non-call three, and the mortgage services firm Radian Group, which has announced a US$350m seven-year bond.
Telecommunications company Nexstar has also joined the pipeline as it prepares to market a US$1.12bn eight-year non-call three to help fund its merger with Tribune Media Company.
Multi-Color is also expected to soon pull the trigger on its dual-tranche US$1.39bn to fund its buyout by Platinum Equity.
Primary issues have largely found a welcome home among investors looking to put money to work, with most deals either upsizing or tightening or both.
That is especially true of credits that are less exposed to China trade and commodity risks.
Investors are keeping a close eye on the oil sector which makes up a good portion of the high-yield index, with many preferring to stay clear of the sector as prices near the US$50 a barrel mark.
“If oil cracks US$50 that will take the market with it,” said one investor. “It is moving people out of the commodity and energy space into the kind of stuff (that is being issued in the primary).
Even so, some issuers are seeing push back with US Renal announcing a series of covenant changes on its deal.
These include tighter debt incurrence, further limitations on liens and the ability to secure debt, as well as an Ebitda cap on add backs.
STRUCTURED FINANCE
Next week’s ABS pipeline is building with a string of new deals announced on Thursday.
Carvana mandated Credit Suisse, Amherst and Wells Fargo on Thursday for its second “near-prime” auto ABS deal, CRVNA 2019-2, which is expected to be priced next week.
The online auto lender is looking to raise US$457m with the deal, an increase from the US$338m it raised with its debut in March. nL8N2176M8
Wheels has also mandated leads for a new US$509m fleet lease ABS, while Ford has mandated for a new US$1.05bn prime auto loan deal. Both are expected next week.
A subprime auto ABS from Westlake Financial Services was priced and upsized to US$1.2bn on Wednesday. Automotive Rentals also sold a US$553.58m auto fleet lease ABS.
Private equity-backed wellness chain Massage Envy meanwhile sold a debut whole business securitization, pricing the five-year notes with a 6.5% yield.
In a report to Congress, Mark Calabria, director of the Federal Housing Finance Agency, asked legislators for authority to charter new competitors to Fannie Mae and Freddie Mac and expand the agency’s regulatory oversight of new entities.
The enterprises’ current duopoly “undercuts competition in the market,” he said.
LATAM
Peru is out in the market with a dual-currency offering comprising local and US dollar tranches.
Initial price thoughts are set at 5.625% area on a 15-year sol-denominated bond and US Treasuries plus 95bp area on an 11-year US dollar denominated tranche.
Activity has slowed compared to the first half of the week which saw an uptick in pricings and announcements.
“Markets are still in okay shape considering the external backdrop,” said a syndicate banker. “But I doubt we’ll see anything else for this week.”
Corporacion Navios-backed, Mineral Logistics, which issued IPTs at high-7% area on a 2037 bond on Tuesday, failed to finalize the deal this week amid talk that it had been pulled, according to market sources.
EQUITIES
Israeli gig marketplace Fiverr will try to keep the strong momentum in the US IPO market going when it debuts on the NYSE this morning.
Fiverr last night priced its IPO of 5.3m shares (17% of expanded shares outstanding) at US$21, US$1 above the top of the US$18–$20 range for gross proceeds of US$110m.
JP Morgan, Citigroup, Bank of America Merrill Lynch and Barclays acted as joint bookrunners.
It was a strong outcome considering the company’s close comp, Upwork, has seen its share price slump in the past month below its IPO price.
Still, Fiverr comes on the heels of some robust aftermarket performances by recent tech debutantes, most notably yesterday’s 70.2% opening gain in the shares of fast-growing cybersecurity firm CrowdStrike.
Fiverr shares will open later this morning under the symbol “FVRR”.
Tonight brings the highly anticipated pricing of the US$800m-plus IPO of PetSmart-backed pet products retail e-commerce company Chewy, this week’s biggest IPO.
Chewy already increased the price range this week in a sign of strong demand for the offering.
Though secondary deal launches have slowed in recent sessions, last night saw BMO Capital Markets price a US$155m sponsor block of shares in LatAm-focused online education provider Laureate Education.
The bank reoffered the equivalent of 15-days’ trading volume at US$15.50, the low-end of the US$15.50–$15.80 range and a 4.8% discount to last sale.
Meanwhile, diabetes drug developer Provention Bio this morning canceled a planned US$75m raise with SVB Leerink as sole bookrunner, blaming “market conditions”.
Swedish conglomerate Kinnevik also withdrew its planned US$618m-plus selldown of emerging markets-focused wireless telecom provider Millicom International Cellular last night, citing “market conditions.”