Tuesday, 16 July 2019

IFR SNAPSHOT-Primaries slow as holiday week beckons

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It was steady business in the IG primary this week, as well as the high-yield market.

On Thursday, one IG deal totaling US$150m was priced, bringing weekly issuance to US$14.5bn and monthly issuance to US$78.025bn, according to IFR data.

Year-to-date IG issuance totals US$601.768, well behind the US$688.915bn sold year-to-date in 2018, according to IFR.

And high-yield remains active, with two possible offerings for Friday.

Commenting on the high-yield market, Barclays said that “the first half of 2019 comes to a close as the start to what could be a banner year for the high yield market, with higher-quality credit generally outperforming.

“While some of the underperformance of CCCs is due to higher-quality credit’s greater benefit from the rate move, other factors have been headwinds for lower-quality performance.”

Investor demand has been a big factor in driving issuers to market. For the week ended June 26, Lipper US Fund Flows reported that the investment-grade funds net inflow was US$3.238bn and the high-yield funds net inflow was US$3.089bn.



Tensions are high as markets await an outcome on US-China trade from the G20 summit this weekend.

Whether Trump walks away with a trade deal or not, volume is expected to be light with as much as just US$5bn coming to market if any borrowers decide to announce at all in the July 4 week.

The meeting could also serve to simply push the can down the road and further elongate the process, Andrew Brenner, head of international fixed income at National Alliance wrote in a note.

“If this is the least bit positive, and it is followed up by a strong or even moderate employment number one week from today, will the Fed still ease in July? We think not,” he wrote.

Eyes are also starting to turn to second quarter earnings which are expected to disappoint to the downside.

Goldman Sachs noted in a report this week that net debt to Ebitda ratios edged up as net profit margins and coverage ratios moved lower during the first quarter, and that trend could continue in Q2.

“The positive momentum that marked 2018 seems to have come to a halt in the first quarter,” the note stated.

“While one data point rarely makes a trend, the negative signal from the first quarter warrants close monitoring, particularly given the weaker-than-expected growth trajectory so far this year.”



US junk bond issuers have yet to finish their borrowing spree for what has been the second most active week this year for the asset class, with two more deals possibly pricing today.

Virtu Financial is readying a US$525m senior secured 2026 note, while Alpha Auto Group has released talk of 8%-8.25% area on a US$225m five-year non-call two. Both are being led by JP Morgan.

Should those two deals cross the finish line on Friday, weekly supply will hit around US$11.42bn this week, putting it within spitting distance of the year’s most active week of May 6, when the market saw close to US$12bn from 19 issuers.

As of Thursday, 20 issuers had printed deals this week, with janitorial services and staffing company Allied Universal issuing a US$2.05bn dual tranche deal yesterday.

Its B3/B- secured 7NC3 secured tranche was upsized to US$1bn from US$800m, with pricing coming at 6.625%, nicely inside whispers of 6.75%-7.00%.

Sirius Computer Solutions, rated Caa1/CCC+, appeared to have a tougher time with its US$300m eight-year non-call three as it sought to fund a buyout by CD&R.

The deal was launched at 11%, well above the 10% area initially whispered.

“If you are a high quality double B or single B in a sector that is not viewed a cyclical, the market has a lot of demand for those types of bonds,” said Will Smith, a high-yield portfolio manager at AllianceBernstein.

“[But]] if you are a triple C company, it is harder to get a deal done than it was nine months ago.



Consumer loan deals from Mariner Finance and Marlette Funding and an aircraft ABS from BOC Aviation were priced on Thursday.

Friday could see a US$234.59m solar ABS from Dividend Finance cross the finish line as well as fast food chain Jack in the Box’s US$1.45bn whole business securitization.

The RMBS market continued a busy week Thursday with Headlands Asset Management pricing a US$234m re-performing loan deal. That took this week’s RMBS deal count to eight and leaves just one in the pipeline for next week - a US$519m non-QM deal from Starwood.

ABS supply is almost keeping pace with last year’s post-crisis record volume of US$127.7bn for the first half of the year, Kroll Bond Ratings said in a midyear outlook report on Friday.

Issuers have sold US$126.6bn so far with volumes from the auto, consumer loan and equipment sectors growing compared with last year, while credit card, student loan and esoteric volumes have dropped.

Kroll expects ABS volumes for the full year to remain mostly flat to last year’s US$249bn.

Consumer credit remains stable, the analysts said, and this along with an expanding economy should be supportive for consumer and commercial ABS fundamentals.



LatAm primaries end the week on a quiet note, with no new announcements as of this morning.

The week saw over US$4bn equivalent raised by five issuers with deals coming from Argentine oil firm YPF, Mexican REIT Fibra Uno, Brazilian steel company CSN along with two sovereigns Mexico and Chile.

“I’ve been hearing of a very healthy pipeline in the weeks leading up to August,” said a syndicate banker.

G-20 meetings in Japan along with Fourth of July celebrations in the US could confine most of next week’s activity to Monday and Tuesday.

More announcements are expected early next week as issuers take advantage of a constructive market backdrop. Yet, lingering uncertainties regarding US/China trade negotiations could also sideline some issuers.

“You just never know. You can wake up to a tweet that changes everything,” added the banker, highlighting the trade instability.

EM debt funds saw net inflows of around US$349m for the week ending June 26, according to Lipper data.



Online luxury consignment store The RealReal last night priced its IPO above range to raise US$300m, putting it on track for a strong Nasdaq debut this morning.

The offering was more than 20x oversubscribed, prompting the Credit Suisse-led syndicate to price 15m shares at US$20, one dollar above the US$17-$19 range.

RealReal is expected to open at approximately 10:20am on Nasdaq under the symbol “REAL”.

Notwithstanding the disappointing debut of Uber in May, IPOs were the shining light in US ECM in the second quarter as hot deals like Beyond Meat, Adaptive Biotechnologies and Revolve (another fashion e-commerce company) delivered big early gains.

But not all deals proved in high demand as the quarter draws to a close.

Leverage-backed healthcare IT company Change Healthcare’s path to public markets proved a long and difficult exercise for its backers, drug distributor McKesson and private equity firms Blackstone and Hellman & Friedman.

The stock found its footing yesterday after pricing a US$807m IPO (including the concurrent sale of US$250m of a form of mandatory convertible securities) at US$13, US$3.00 below the bottom of the US$16-$19 range. The stock debuted at US$14.00 on Nasdaq and finished the day at US$15, up 15.4% for the day.

The three biotech IPOs that debuted yesterday posted impressive gains.

Cancer diagnostics company Adaptive Biotechnologies led the charge with a 103% first-day gain, the year’s second best debut performance behind Beyond Meat’s 163% day-one pop.

KKR-backed BridgeBio Pharma posted an impressive 62% first day gain after raising US$348m in this year’s largest IPO. Morphic Therapeutics flew under the radar with a 20% gain after raising US$90m IPO that was upsized and priced at the midpoint.

Karuna Therapeutics continued this week’s streak of strong biotech deals with a US$91m IPO that was upsized and priced at the midpoint.

Goldman Sachs, Citigroup and Wells Fargo priced 5.64m shares (from 4.37m) at US$16 each, the middle of the US$15–$17 range.

Karuna will debut later this morning under the symbol “KRNA”.


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