The US investment-grade primary is taking a rest on Thursday, while the high-yield sector is stirring with a handful of deals.
The Latam corporate bond market is active and is expected to see a couple of offerings.
Wednesday saw four deals in IG totaling US$3.700bn, pushing weekly volume to US$5.650bn. April supply so far amounts to US$74.650bn.
HIGH GRADE
No investment-grade borrowers are expected to tap the primary on Thursday, with the exception of a couple of LatAm deals.
Earnings continue to dominate the headlines and corporate management teams have been more vocal about their deleveraging plans during investor calls, said Josh Lohmeier, head of North American investment grade credit at Aviva Investors.
The buyside has to do more homework to see which deleveraging stories are most believable, he said, because some companies are more prudent than others.
“My fear isn’t that leverage will keep creeping up,” Lohmeier said. “My fear is companies don’t hit their [deleveraging] targets before the cycle turns.”
Although leverage is believed to be on the decline, gross leverage in the US high-grade index (ex financials) during the fourth quarter was up to 2.95 times compared to 2.8 times the prior quarter, according to a CreditSights report from this week.
Oil company Occidental could see its leverage tick up if its US$57bn deal to acquire competitor Anadarko goes through over Chevron’s bid.
Moody’s placed Occidental on review for a multi-notch downgrade yesterday that would drop the company into the Triple B space. nL5N2267S0
“The proposed acquisition would afford strategic and cost benefits to Occidental, however, at the very high cost of a significantly eroded credit profile,” Moody’s wrote in the report.
HIGH YIELD
APX Group and Adient look to be the next issuers to hit the junk market on Thursday after streaming service Netflix raised US$2.24bn equivalent in the US dollar and euro markets yesterday
APX, the parent of smart home services company Vivint, is out with talk of 8.25% area on a US$250m 5.5-year non-call two.
Meanwhile, Adient, a manufacturer of automotive seating, is testing the waters with 7.125% area on its US$750m seven-year non-call three senior secured offering.
Netflix drew strong demand for its latest long-dated high yield bond offering on Wednesday, upsizing the deal and bringing in pricing from initial thoughts on both the dollar and euro tranches.
As many as five more deals are expected to be priced before the end of the week.
Secondary market conditions have been steady with buy-side sources reporting strong earnings reports, rising oil prices and good conditions in the stock market supporting demand for high yield.
“Issuance has been flat to 2018 but now we have strong inflows, which has created a strong technical positive for the market,” said Kevin Mathews, global head of high yield at Aviva Investors. “The opportunity in high yield is now more of a carry trade.”
STRUCTURED FINANCE
Pricing activity in the structured finance market picked up on Wednesday, with a pair of RMBS deals, a consumer loan ABS and agency CMBS paper crossing the finishing line.
JP Morgan sold a new US$387m deal from its prime jumbo mortgage shelf, JPMMT 2019-3. The floating rate A5 note priced at IS+135bp, 5bp tighter than its previous deal which was sold in March.
Pretium also sold a non-performing RMBS, with Credit Suisse as sole bookrunner. The senior tranche was priced with a yield of 3.875%.
Marlette Funding’s latest consumer loan ABS was priced at EDSF+65bp, 12bp tighter than the senior tranche on its last deal, sold in February.
A handful of new deals also emerged. A US$420m re-performing RMBS deal from MetLife is expected to be priced on Friday, structured by Credit Suisse.
Well Fargo also announced a new conduit CMBS, WFCM 2019-C50, which is expected to be priced next week. The deal’s largest exposure is to retail properties, which comprise 30% of the collateral in the US$821.891m deal.
Global Lending Services has also mandated JP Morgan (structuring) and Deutsche Bank for a new US$350m subprime auto loan deal, which is also expected to be priced next week.
LATAM
LatAm primaries are finally seeing a burst of activity as Panama’s Etesa and Chile’s Arauco hit the market on Thursday.
Pulp and paper firm Arauco is set to price a dollar benchmark 144A/RegS deal comprising 10 and 30-year maturities.
Initial price talk for the 10-year note has been set at T+195bp area, while the 30-year notes are at US Treasuries plus very high 200s. JP Morgan and Scotiabank are lead bookrunners on the deal.
State-owned energy company Etesa is also out with a 30-year amortizer with a 23-year average life at IPTs of 5.375% area.
The pipeline could grow next week as a few more announcements are expected.
EQUITIES
Tesla flagged a potential capital raise in the wake of disappointing first quarter earnings.
The electric carmaker, which lost US$700m in the quarter but promised to return to profitability, finished the quarter with US$2.2bn of cash, after repaying US$920m of CB in March.
Tesla head honcho Elon Musk did hint that a capital raise was in the works.
“There is some merit to raising capital,” he said on the company’s quarterly earnings call after the close yesterday. “It’s probably about the right time.”
Regular-way issuance remains muted in the midst of corporate earnings reports.
Gritstone Oncology, an early-stage biotech, secured US$75m last night in a follow-on stock sale, the company’s first since going public in September.
Goldman Sachs, Cowen and Barclays placed 6.5m shares at US$11.50, a hefty 16.9% discount to the US$13.84 launch price.
Gritstone went public in September at US$15.00 a share.
Gritstone shares are down 11.5% in early Thursday activity to US$10.89.
Gritstone is using proceeds to fund a Phase I trial of one of its cancer drugs later this year.
Huami, a Chinese wearables maker, also traded heavily, falling 10.8% in the marketing of a largely secondary offering of 7.9m ADSs.
Morgan Stanley, Credit Suisse and Citigroup priced the deal this morning at US$9.75, an 11.7% discount to last sale and 21% below pre-launch levels.
Huami’s NYSE-listed ADSs are trading at US$9.95 early Thursday.
The offering included 7.1m ADS from selling shareholders led by venture backer Shunwei Capital Partners.