Sunday, 16 June 2019

IFR SNAPSHOT-Three deals to tap IG primary

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The pace of issuance slows as Holy Week starts for Easter and earnings pick up their gait. Three issuers are lined up for the IG primary for Monday. Last week, IG volume totaled US$23.85bn, pushing April supply to US$47.4bn.

Also, we are at the mid-way point for April and almost one month into spring, and everything seems to be coming up roses, according to a note from Bank of America Merrill Lynch.

“Whereas March performance was a tale of strong excess demand for corporate bonds overcoming macro headwinds, in April - as expected - the story is a big rally as technicals have remained very favorable but the macro has turned much more positive.”

“This better macro picture means that credit investors are now finally embracing the rally, allowing the laggards - longer maturity BBBs - to catch up.” BAML said.

“Needless to say, we remain bullish IG, like BBBs and are in 10s/30s curve flatteners.”



The investment grade primary is off to a slow start as earnings slowly trickle out and folks eye the long holiday weekend ahead.

BMW US Capital is in the market today as the third auto issuer to tap the high-grade market since the start of the second quarter.

Toyota Motor Credit and General Motors Financial Services both issued new debt earlier in the month as part of their regular quarterly funding plans while BMW tends to issue larger bonds twice a year.

Today’s four-part issuance from BMW consists of three, five and 10-year fixed maturities, as well as an optional three-year floater.

Last time BMW tapped the market it raised US$3bn in a five part issuance in August 2018, according to IFR data.

Average US auto spreads reached a new low on Friday trading at 129bp over Treasuries - 49bp tighter from the start of the year, according to ICE BAML data.

The other issuers in the space include Shinhan Bank with an overnight US-dollar 10-year Tier 2 bond and Mexican telecommunications company America Movil with a two-part note.



So far, three deals have been lined up in the high-yield market this week and all of them are expected to be priced on Wednesday.

In-flight internet firm Gogo Intermediate Holdings was the only new announcement on Monday. The company announced a new US$900m 5NC2 senior secured first lien note via JP Morgan and Morgan Stanley, which will be used to pay down existing debt.

Healthcare firm Vizient and diversified natural resources firm Natural Resource Partners are also planning to price new junk bonds on Wednesday.

Secondary market trends bode well for new issuance.

Average high yield spreads rallied to their tightest level in the year to date last week, hitting 368bp over Treasuries according to ICE BAML data.

Analysts at Bank of America Merrill Lynch said that it appears inevitable that the rally will soon extend into CCC bonds, which so far have lagged the rest of the market. But it said “the move is not likely to survive nor is it likely to be a good point to be adding risk from the longer-term performance perspective.”



The ABS sector is continuing its strong run of primary issuance with two new deals launched on Monday.

Exeter Automobile announced a new US$550m subprime auto ABS deal through Deutsche Bank and Citibank, while Textainer announced a US$250m container lease ABS deal structured by RBC that is expected to be priced mid-week.

Three CMBS deals and up to five new RMBS deals are in various stages of marketing, along with three more ABS deals which are yet to be launched.

Last week was the busiest of the year so far in ABS, with 16 issuers pricing over US$12bn of deals.

Despite the heavy volume of supply, issuers were able to keep pricing tight which JP Morgan analysts said reflected the strength of demand.

Across credit cards, auto and equipment ABS, spreads tightened by 1bp-2bp, they said on Friday.

“We believe ABS spreads can continue to grind tighter, led by benchmark consumer ABS sectors, given the robust demand for spread pickup (for AAAs and down in the capital structure) relative to a manageable supply pipeline,” the analysts wrote.



Kicking off what is expected to be a relatively quiet week, Mexican telecom America Movil is coming to the dollar market for the first time since 2013.

The company is readying pricing on a two-part offering comprising maturities of 10 and 30 years, with initial price thoughts set at 135bp and 165bp area, respectively.

America Movil, rated A3/A-/A-, has mandated Citigroup and Morgan Stanley as joint lead managers, with proceeds going toward refinancing outstanding debt, according to an SEC filing.

The telco hasn’t tapped the international hard currency market since 2016 when it issued a EUR1.5bn two-part trade.

The issuer could be taking advantage of the bullish backdrop for LatAm credits. Last week saw five crossborder deals price, including Panama’s first Euroclearable treasury bond.

Panama’s state-owned energy company Empresa de Transmision Electrica has also announced plans to meet with investors late last week. The deal is expected to price sometime next week.



After first-quarter earnings reports, seasoned companies are joining a crowded IPO calendar with new financings.

Aqua America is moving ahead with a two-part US$1.725bn equity-linked raise to help fund the US$4.725bn purchase of Peoples Natural Gas that it agreed to in October.

Aqua America is looking to raise US$1bn from the sale of common stock and another US$725m in the form a three-year mandatory.

Goldman Sachs, RBC Capital Markets, Bank of America Merrill Lynch, Morgan Stanley and Wells Fargo are conducting three days of marketing with pricing of both tranches expected after the market close Wednesday.

Aqua America shares are off 4.2% on this morning’s deal launch to US$35.27. The MCB is being talked at a 6.0%-6.5% dividend and 17.5%-22.5% conversion premium.

Canada Pension Plan last month agreed to purchase US$750m of stock in a private placement to defer a portion of the financing costs.

Aqua America, which expects to close the acquisition in the first half of the year, also plans to sell US$1bn of new debt.

Following Uber Technologies’ US$1bn (placeholder) public IPO Thursday, eight companies have filed to go public Friday, including five biotechs.

Biotechs Axcella Health (liver disease), Milestone Therapeutics (cardiovascular), Applied Therapeutics (diabetes), NextCure (cancer) and Cortexyme (Alzheimer’s) each put US$86.3m of filings on Friday.

Engineering & construction firm Parsons and Mayville Engineering, a provider of OEM body parts for truck manufacturers, also publicly filed IPO documents.

Commercial bank South Plains Financial also disclosed its intent to raise US$50m through an IPO.



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