IFR SNAPSHOT-Tariff threats roil markets

9 min read
John J. Doran

At least three IG offerings are making their way into the primary market on Monday amid the turmoil created by tariff tweets over the weekend.

President Trump said on Friday trade talks were progressing and then on Sunday said in a tweet that he would ratchet up tariffs on US$200bn worth of imports from China, Reuters reported. Trump said a trade deal was coming together too slowly.

China said on Monday that a delegation was still preparing to go to the United States for trade talks, Reuters reported.

Bank of America Merrill Lynch said in a note, “The immediate market response suggests that the latest escalation of the trade war was a complete surprise to investors.”

“This means that markets could be in for a bumpy ride before a trade deal is reached.”

HIGH GRADE

Volatility in the market may be pushing the highly anticipated Bristol-Myers Squibb issuance out later in the week.

Other issuers were waiting for the estimated US$21bn Bristol-Myers shoe to drop Monday, and when it did not, then only three names announced.

Coming to market on Monday are Commonwealth Edison with a 30-year bond, Public Service Electric & Gas with 10-year and 30-year offerings, and American Water Capital Corp with a 10 and 30-year benchmark senior unsecured note.

Separately, Occidental Petroleum upped its cash offer to 78% for the US$57bn purchase of Anadarko Petroleum as the company looks to win the acquisition over Chevron.

The revised offer now includes US$29bn in cash, which will be funded with US$10.5bn of debt, a US$8.8bn sale of Anadarko’s assets in Africa, and US$10bn from a preferred investment from Warren Buffet, according to CreditSights.

Kraft-Heinz bonds are moving tighter after revealing some clarity around the nature of a Securities and Exchange Commission probe disclosed earlier this year.

The subpoena from the SEC requires Kraft-Heinz to refile three-years of earnings due to timing issues and recognition of supplier contracts.

The company’s bonds had already moved wider on the threat of a downgrade by S&P to BBB-, which would bring its ratings in line with Fitch and Moody’s. nL8N2155X1

HIGH YIELD

No new deals are expected to price in the high-yield primary on Monday, but there are a few working their way through the market including a debut US$1.25bn deal for MGM China, and a US$525m issue for airline VistaJet Malta.

But more large debt financings could be on the way after Sinclair Broadcast agreed to buy the majority of 21 Regional Sports Networks and Fox College Sports from Disney for US$9.6bn.

The portfolio includes the exclusive local rights to 14 Major League Baseball teams, 16 National Basketball Association teams and 12 National Hockey League teams. The RSNs will be acquired by a subsidiary of Sinclair called Diamond Sports Group.

Sinclair said on Friday it had financial commitments from JP Morgan, Deutsche Bank, Royal Bank of Canada and Bank of America roughly as follows: a US$3.3bn seven-year term loan, a US$300m five-year revolving credit facility, US$2.55bn of senior secured bonds and US$2.325bn of senior unsecured bonds.

The deal will also be financed with about US$1.025bn of preferred equity, and US$1.4bn of equity that will be funded with US$700m of cash on hand and US$700m of debt at Sinclair Television Group.

More details may emerge after a call this morning.

STRUCTURED FINANCE

Issuers are expected to price US$2.2bn in the primary ABS market this week, after auto ABS issuers dominated last week’s activity, pricing over US$4.7bn of new deals.

A report in the Wall Street Journal last week that the Trump administration had hired consultants to weigh up selling student loan risk to investors has prompted speculation over the potential impact on ABS markets.

JP Morgan analysts said in a note that credit risk transfer deals in the agency mortgage market set a precedent for this kind of public/private partnership, but student loans were more difficult to analyze as they are not underwritten to credit metrics.

In addition, even at US$1.46trn and growing, the student loan market offers only a small incremental volume of potential risk transfer ABS compared with the mortgage market, they said.

Bank of America Merrill Lynch analysts, meanwhile, said Friday that last week’s strong employment report and dovish comments from Federal Reserve board members meant there was still potential for tighter spreads in securitized products.

“The consumer related ABS sectors should clearly benefit from the strong employment situation, as well as commercial related ABS sectors mostly exposed to the US economy,” they wrote. “However, commercial sectors exposed to international trade might not benefit as much, especially given current spread levels.”

LATAM

The LatAm primary market is set for a quiet day today with markets in London closed and a more volatile day in general for financial markets after US President Donald Trump said on Sunday he would raise tariffs on US$200bn worth of Chinese goods this week and target hundreds of billions more soon.

Citigroup analysts said in a note out Monday that any sell-off could last more than a day - but that the tariff headlines were likely more of a negotiation tactic.

“In the bigger picture this is likely a buying opportunity for EM, but some more time is likely needed for market prices to adjust,” the Citigroup analysts said.

Two corporate deals were issued last week from Chilean miner SQM and Brazilian meat processor Marfrig - and the latter was being actively traded early on Monday, one trader told IFR.

Marfrig’s new US$1bn seven-year non-call three was holding up relatively well in secondary despite the weaker market tone. The deal, which priced at 98.646, is off its highs but still up about a point from where it cleared, the trader said.

“We’re seeing good two-way flow in Marfrig,” the trader said.

“There is quite a bit of bifurcation. Some of the higher-yielding names are 4-7bp wider this morning, but investment-grade names are mostly unchanged.”

EQUITIES

Led by Uber’s mammoth US$9bn all-primary offering Thursday, there are 13 companies seeking to go public in the week ahead.

Overall, this week’s IPOs are seeking to raise a combined US$10.6bn.

At US$9bn, Uber will be the biggest US listing since Alibaba’s US$25bn debut almost five years ago, valuing the company at US$85bn. The deal is all primary, but founder Travis Kalanick and other backers are set to sell some of their shares if the greenshoe is exercised.

Morgan Stanley, Goldman Sachs, Bank of America Merrill Lynch, Barclays, Citigroup and Allen & Co were oversubscribed on the 180m shares being marketed at US$44-$50 apiece within two days of launching Uber’s offering.

Parsons, an employee-owned government IT/engineering consultant, seems headed for a strong outcome on its US$518.5m IPO, scheduled to price Tuesday.

Axcella Health, expected Wednesday, is the latest biotech to enter the race for a cure to NASH, championing a more holistic approach that will allow for expedited development.

Fastly, a software development provider, joined the IPO parade this morning by launching its up to US$180m offering. Bank of America Merrill Lynch, Citigroup and Credit Suisse are planning to price 11.25m shares within a US$14-$16 marketing range after the market close next Thursday.

PIMCO has revived plans for a mortgage REIT affiliate nearly a decade after scrapping an earlier lift to list. PIMCO Mortgage Income Trust, the new vehicle, is seeking to raise US$1bn through its IPO.

Credit Suisse, Bank of America Merrill Lynch, Goldman Sachs and Morgan Stanley launched marketing this morning on 50m shares marketed at a fixed, US$20.00 offer price. They expect to price the deal post-close May 15.

Tencent-backed game live-streaming platform DouYu International Holdings has decided to wait before launching an NYSE IPO of up to US$500m after US President Donald Trump’s latest tariff threat led to a global market sell-off, according to people close to the deal.

DouYu originally aimed to open books this week and price the deal mid-next week, said the people. It will now monitor developments in the ongoing US-China trade war before launching the transaction, said two of the people.

Founded in 2013, DouYu, or “Fighting Fish”, is one of the leading live game-streaming/esports platforms in China. Pre-IPO, Tencent owns a 40% stake in the company.

Morgan Stanley, JP Morgan and Bank of America Merrill Lynch are the joint bookrunners.