Four IG issuers stood down on Wednesday as the stock market continues its decline and US Treasury yields shift even lower.
An offering from a South Korean oil refiner is expected to be the only deal in the IG primary today.
The culprits behind the market volatility remain the macro forces of the world, primarily the US and China trade dispute and the ensuing uncertainty.
Tariffs are seen as economic growth dampener. Thus the US Treasury 10-year note yield touched 2.22% this morning as the yield curve continued its inversion.
The four deals - a financial and three utilities - that came to market on Tuesday were seen a defensive plays for investors in the midst of the stock market decline.
Tuesday’s issuance was US$3.000bn, bringing IG supply volume in May to US$101.500bn and year-to-date issuance to US$520.893bn.
HIGH GRADE
South Korean oil refiner GS CalTex will be the only IG borrower in the primary Wednesday.
Some of the issuers in the pipeline that had already made investor calls included electronic manufacturer Flex, Indiana-based CNO Financial and European commercial real estate company Unibail-Rodamco-Westfield.
“[Issuers] didn’t like the tone of the market and wanted a firmer day,” one syndicate told IFR.
“Concessions are going to go up and whatever issuers do come to the market can’t be the ones that want to squeeze every last basis point because those guys won’t make it.”
Spreads continue to widen due in large part to continued volatility stemming from US-China trade negotiations.
One of the issuers on Tuesday was the financial Mastercard with a two-part US$2bn issue that garnered a US$6.8bn order book.
However those 10 and 30-year bonds were trading as much as 5bp and 7bp wider, respectively, this morning according to MarketAxess data.
HIGH YIELD
CNO Financial and GoDaddy look to be the next issuers off the block after releasing whispers on deals that are expected to price later this week.
CNO, a financial services company based in Indiana, is whispering low to mid 5% on US$425m 10-year bullet, while web-hosting provider GoDaddy is whispering mid 5% on a US$600m 8.5-year non-call three, its debut in the bond market.
Meanwhile, it looks like the market will have to wait a few more days before Neiman Marcus prices its US$550m five-year non-call two after it extended the deadline on an exchange offer that is part of the deal.
“There is no way they would be in the market unless this was largely spoken for,” said one investors who thinks the Neiman deal will get done despite some delays.
Even so, the market is certainly looking increasingly softer. Safe haven buying pushed yields on US Treasuries to 20 month lows earlier today as investors fret about the fall out from a prolonged US-China trade war.
Average US high-yield spreads are also widening 3bp on Tuesday and 6bp over the last 10 days, according to ICE BAML data.
STRUCTURED FINANCE
The big news in structured finance on Wednesday morning was Morningstar’s plan to purchase rival rating agency DBRS for US$669m.
The cash and debt tie-up would meld together two smaller credit rating firms that have a large focus on rating asset-backed securities.
Moody’s, S&P and Fitch still hold a roughly 95% slice of the overall credit ratings pie, but DBRS, Morningstar and Kroll have gained ground in ABS since the financial crisis.
In CMBS, for example, DBRS held a 29.8% share in the first half of 2018, while Morningstar had 11.5%, according to the SEC’s 2018 annual credit rating agency report.
Morningstar expects the deal to close in the third quarter of this year. It is subject to regulatory approval.
LATAM
Mexico-based America Movil, the Dominican Republic and Brazil’s Ultrapar were expected to price dollar deals this week.
However, given the turn in markets and volatility, it is unclear whether they will tap the market.
“America Movil is supposed to come out and they haven’t. Market conditions are definitely affecting it to a certain extent,” said one syndicate banker.
The Mexican telco wrapped meetings on a senior unsecured dollar note last Friday. Barclays is the sole runner on the transaction.
“People are worried about growth - it’s not a great backdrop,” said a senior banker.
The Dominican Republic announced a one-day roadshow yesterday led by Bank of America Merrill Lynch and JP Morgan to market a two-part local and dollar deal.
Ultrapar is scheduled to end investor meetings today ahead of a US 144A/RegS dollar bond with an intermediate maturity. Bradesco, Citigroup, Goldman Sachs,Itau and Santander are leading the deal.
EQUITIES
Cybersecurity specialist CrowdStrike this morning launched its roughly US$400m IPO with an extensive roadshow.
Goldman Sachs, JP Morgan, Bank of America Merrill Lynch and Barclays are marketing 18m shares at US$19-$23, an unusually wide four-dollar spread that allows room for debate on valuation.
Top-end pricing values CrowdStrike at US$5.2bn, compared to the US$3bn the company fetched on a US$200m Series E private round last June, according to Refinitiv data.
To accommodate investors in a holiday-shortened week, the company is marketing the deal for 10 full days with pricing scheduled for Tuesday, June 11.
Revolve Group, the Millennial-focused online clothing retailer, yesterday launched a circa US$200m IPO that is expected to price Thursday.
Consumer goods company Mohawk Group also yesterday launched a roughly US$50m IPO that is expected to price the week of June 10. Roth Capital and AGP are marketing 3.3m shares at US$14-$16 apiece.
GSX Techedu, a Chinese provider of post-secondary education, is expected with its roughly US$225m IPO next Wednesday.
Blackstone Group, somewhat predictably, continued its lengthy monetization in Invitation Homes, offloading a 40m-share block overnight to a syndicate of banks led by Citigroup, Bank of America Merrill Lynch and Goldman Sachs.
The banks offloaded the US$1bn shared-risk purchase at US$25.30 apiece, a tight 0.4% discount to a US$25.41 last sale on a hefty 13-days’ trading volume.
The shared-risk format follows a solo takedown by Morgan Stanley of 43m Invitation Homes shares in March that were reoffered at US$23.30.
Blackstone, which took the single-family home rental company public in January 2017, has now reduced its holdings in Invitation Homes to 140m shares, a 26.6% stake.
Sun Communities raised US$400m in a primary block trade last night via Bank of America Merrill Lynch and Citigroup. The banks reoffered 3.25m shares at US$123.25, a 2% discount on eight-days’ trading volume.
The RV-park REIT is using proceeds to repay the bulk of the US$490m drawn on a recently enlarged US$650m credit facility, providing it with capacity for potential acquisitions.