IFR SNAPSHOT-Primaries quiet as Memorial Day holiday arrives

8 min read
John J. Doran

A quiet Friday for US corporate primaries as desks prepare for the Memorial Day holiday.

No deals were priced in IG and HY on Thursday.

For the week ended May 22, Lipper US Fund Flows reported that investment-grade funds saw net outflows of US$755.78m and high-yield funds net inflows of US$3.973m.

“Flows for this past week ending on May 22 show that US fund and ETF investors bought the dip,” write analysts at Bank of America Merrill Lynch.

“As risk assets sold off flows turned positive for both stocks and high-yield bonds. That was funded with high grade and government bonds, where inflows instead declined. In fact short-term high grade had a net outflow.”

HIGH GRADE

At US$16.6bn in US investment-grade volume through Thursday and no issuance expected today, weekly supply will fall below the US$20bn estimated for the week.

Monthly issuance totals US$98.5bn so far on estimates of US$120bn-US$130bn. So borrowers will have to hit the ground running when markets reopen Tuesday to meet those goals.

Estimates for next week are coming in light with some US$15bn area of issuance.

Credit spreads continue to drip wider as equities react more wildly to US-China trade discussions.

The investment-grade CDX five-year IG.31 has widened in the past week erasing all of the tightening through April.

Volatility in the markets is unlikely to deter M&A financing, syndicates told IFR, but there remains little in the pipeline.

Hewlett-Packard last week added to the pipeline with a US$1.3bn acquisition of supercomputing solutions company Cray, which is expected to be funded through new debt financing.

The big ones yet to announce include 3M’s US$6.7bn acquisition of medical device company Acelity, Occidental’s US$38bn bid for petroleum competitor Anadarko and General Electrics’ US$21.4bn sale of its biotech unit to Danaher.

HIGH YIELD

The primaries for US high-yield issuance is seeing another slow day with just luxury retailer Neiman Marcus (CCC-) and oil field services company Q’Max Solutions (Caa2/B-) left in the pipeline.

Neiman Marcus has been marketing a US$550m Triple C rated junk bond this week as part of a debt exchange aimed at giving the company time to reach a firmer financial footing.

The bond will offer an enticing 14% yield - but 8% of that will be paid in cash, while the other 6% is pay-in-kind. Both are payable twice per year.

Sponsors are also dangling credit support from Neiman Marcus’ online luxury clothing business MyTheresa as a bargaining chip in the restructuring.

The new second lien bonds have a US$200m claim on the unit.

This comes as escalating tensions between the US and China depress key sectors in the US high-yield market, including autos and energy.

Both those sectors have underperformed over the past 10 days or so, widening 31bp and 44bp respectively, according to ICE BAML data.

Retail, which is already facing its own headwinds, could also come under pressure, though spreads in that sector have only widened 14bp over the same period.

Average spreads on Triple C credits, which have dominated issuance recently, have also taken a bashing, widening 35bp over the same period.

“Given the recent acceleration in HY supply, the technical backdrop for HY spreads will likely not be sufficiently strong to counter these fundamental headwinds,” said Goldman Sachs analysts, which are underweighting Triple Cs and autos.

STRUCTURED FINANCE

Around US$3bn of ABS is expected to hit the market after the Memorial Day holiday, with a range of equipment, solar and consumer loan deals being marketed as well as a whole business securitization from Dine Brands.

ABS issuers priced over US$5.9bn this week according to IFR data, although activity was skewed to the early part of the week.

The structured finance market was relatively quiet on Thursday although a debut non-QM deal from alternative investment manager Angelo Gordon emerged, which is expected to be priced next week.

Credit Suisse has the mandate to arrange the US$365.131m deal.

A pair of single-borrower CMBS deals are also in the works. Goldman Sachs has filed for a potential deal, GSMS 2019-SOHO, which is backed by a loan secured on One SoHo Square, a Manhattan office property with retail space.

And Credit Suisse, Bank of America Merrill Lynch and Morgan Stanley have been mandated on what will be the biggest single-borrower CMBS of the year so far - a US$2.35bn deal backed by a portfolio of industrial cold storage properties, CSMC 2019-ICE4.

LATAM

Like markets elsewhere, the LatAm primaries are taking a breather on Friday ahead of the long holiday weekend in the US after seeing US$2.3bn of supply hit the US dollar market this week.

Gran Tierra, Televisa and Suzano all printed deals against a volatile backdrop this week as concerns over a prolonged trade war between the US and China hit asset prices.

Even so, the region’s pipeline continues to grow with Brazilian gas distributor Ultrapar roadshowing next week and Mexico’s America Movil wrapping up market for a euro deal today.

Brazilian credit card operator Cielo has also launched a cash tender and consent solicitation for its outstanding 3.750% 2022 senior notes.

The transaction is conditional upon a concurrent funding being carried out by the company.

This comes as EM debt funds suffered another bout of outflows this week, with US$120.491m heading for the exits.

Secondary markets are putting in a mixed performance with Petrobras’s 5.75% 2029 up about 0.415 of a point at 101.10, while Televisa’s new 5.25% 2049 is changing hands at around reoffer at 98.838, according to MarketAxess data.

EQUITIES

After seven deals priced Wednesday, including three IPOs, there were no launches after the market close Thursday and there is nothing on the forward calendar, with the exception of Slack Technologies distant planned direct NYSE listing June 20.

The June IPO calendar is taking shape with new deals that can launch and price after Memorial Day weekend.

Endeavor Group Holdings, the parent company of the William Morris Agency, IMG and mixed martial arts league Ultimate Fighting Championship.

The company filed a US$100m placeholder filing for an NYSE IPO this afternoon on what is likely a US$1bn-plus offering.

The company will need to raise much more in order to address its hefty US$4bn of debt used to fund the purchase of the UFC of 2014 that has now levered it at a weighty 7.6x multiple of Ebitda.

Goldman Sachs, KKR, JP Morgan, Morgan Stanley and Deutsche Bank are mandated as joint bookrunners.

Priam Capital filed documents late Wednesday for a US$100m IPO for a new REIT that plans to own and refurbish office buildings in cities where Millennials want to work.

Bank of America Merrill Lynch, Baird and RBC Capital Markets are joint bookrunners on the planned offering, which would be only the second REIT IPO of 2019.

The parade of biotech deals should continue with new filings yesterday from Stoke Pharmaceuticals (US$86.3m) and Personalis (US$115m) yesterday.