IFR SNAPSHOT - IG primary back in the swing with 14 issues
There will be no rest for the weary as the US investment-grade corporate primary expects to welcome at least 14 offerings on Monday, following a busy week that saw 34 IG issues priced.
The high-yield primary is quiet today.
There are plenty of economic reports to sift through this week, with the most notable releases likely to be the Consumer Confidence Index on Tuesday, the durable goods report on Thursday and Personal Income and Outlays on Friday. For today, two less critical releases are out, with the Chicago Fed National Activity Index at 8:30am New York time and the Dallas Fed's Texas Manufacturing Outlook Survey at 10:30am.
In the markets so far, yields on US Treasuries are a couple of basis points higher across the curve amid no major catalysts. US stocks opened higher in morning trade after last week's battering.
No offerings were priced in the IG and HY primaries on Friday.
For the week, the IG primary saw 67 tranches priced totaling US$53.75bn, lifting February's supply to 137 tranches priced totaling US$114.465bn, according to IFR data. The average IG new issue concession for the week was 1.82bp and the average order book was 4.23x, according to the data. The average progression from initial price thoughts to pricing was 24.22bp tighter.
After last week’s more than US$50bn of IG supply soundly surpassed expectations for approximately US$40bn, consensus expectations suggest this week will feature around US$34bn, BMO said. "That’s a relatively light estimate for the final week of February, which has seen average supply of $45bn over the past eight years."
If this week’s supply forecasts prove prescient, February will end with total IG supply of about US$150bn, short of both expectations coming into the month for US$165bn-$170bn and the February average since 2016 of US$158bn, BMO said.
In the HY primary, four tranches were priced totaling US$3.1bn, lifting February volume to 25 tranches priced totaling US$18.86bn.
The average IG bond spread edged out by 1bp to 81bp on Friday and the HY bond spread widened by 12bp to 278bp, according to ICE BofA data. US yields across asset classes were mixed on Friday.
"IG index spreads widened 1bp during Friday’s risk-off session in conjunction with a sharp sell off equities," BMO said.
"The ICE US Corporate Index opens this morning with an OAS over Treasuries of 81bp, right in the middle of the 7bp range that has prevailed since the Presidential election," BMO said. "That’s a span that covers 75 trading days, making the past 3.5 months some of the least volatile in the history of the IG market."
The stability in IG index spreads is remarkable considering both the ongoing uncertainty associated with the implementation of the Trump 2.0 agenda and recent economic data featuring inflation surprising to the upside alongside evidence of slowing consumer spending and confidence, BMO said.
HIGH GRADE
The US investment-grade bond market is headed for a busy session at the start of the week. At least 14 US high-grade deals are expected to price Monday.
Utilities American Water Capital, Georgia Power, Entergy Texas, Pacific Gas and Electric, Nstar Electric, Ameren Illinois and CenterPoint Energy Houston Electric are jumping into the market today.
Oil company Chevron is issuing a seven-part bond deal to refinance commercial paper debt. Midstream energy company Targa Resources is pricing a two-part bond offering, split into 10 and 30-year senior unsecured notes.
Iron miner Vale Overseas is issuing a US$750m tap of its 6.4% 2054 senior unsecured note. Meanwhile, regional bank Citizens Financial is issuing a six-year non-call five fixed-to-floating rate note.
HSBC is marketing a US dollar Additional Tier 1 transaction, while Marriott International is looking to price seven and 12-year senior unsecured notes. LPL Financial is issuing five and 10-year notes.
LEVERAGE/HIGH YIELD
The US primary market for junk bonds is off to a slow start to the week, with no new announcements as of early morning.
In the secondary markets, First Quantum Minerals' newly minted 8% 2033 traded late Friday at a dollar price of 101.250 after pricing at par last week, according to MarketAxess data.
Carnival's new 5.75% 2030, however, has performed less well. It also priced at par but drifted down to 99.688 on Friday.
Price action on Friday came amid a general widening for the asset class, which saw average bond spreads ending the week 16bp wider to hit 278bp, according to ICE BofA data.
STRUCTURED FINANCE
After asset-backed securities issuers raised a total of US$6bn in the US last week, the pace of issuance is expected to be subdued at the beginning of this week as dealmakers attend the Structured Finance Association’s annual industry conference in Las Vegas, which began yesterday.
Nonetheless, Illinois-based farm machinery maker Deere is working on an equipment ABS trade that is slated to price as soon as this week.
Attendees at the SFVegas conference on Monday will be treated to sessions on a wide range of topics, from data center securitization and CLOs to quantum mechanics and the US elections, according to the agenda. The conference wraps up on Wednesday.
LATAM
Vale is expected to price a US$750m tap of its 6.4% 2054s today. Price thoughts are in the 195bp area over US Treasuries.
The Brazilian miner, rated Baa3/BBB-/BBB, concurrently launched an offer to buy back three outstanding guaranteed notes, prioritizing the 8.25% notes due in 2034, followed by the 6.875% notes due in 2039, and then the 6.875% notes due in 2036.
The tender offer is contingent on the issuance of the new debt securities. The tender offer expires March 24, and the early deadline is March 7.
BMO, Bank of America, Credit Agricole, HSBC and JP Morgan are global coordinators in the bond sale and dealer managers for the tender offer. Morgan Stanley and Santander are joint bookrunners.
EQUITIES
Unity Software is undertaking a day of marketing to raise US$500m from the sale of a new five-year convertible bond to pay down some of the outstanding principal on an existing zero-coupon CB that is due next year and deeply out of the money.
Morgan Stanley, Bank of America and Citigroup are marketing the gaming and content development platform's new CB at a 0%-0.5% coupon and 27.5%-32.5% conversion premium through Monday's session for pricing after the market closes.
Simultaneously, the banks are negotiating to use the proceeds to repurchase US$500m of the US$1.25bn outstanding on the existing zero-coupon CB.
The old CB is convertible at prices above US$308.72, far from Unity’s current share price of US$28.34.
Unity is using some of the proceeds from the new CB to purchase a call spread to effectively increase the conversion price even further and limit potential dilution.