China Evergrande Group's shares and US dollar bonds surged on Thursday on a media report that state-owned enterprises will support the developer's restructuring and news that its flagship unit has resolved an onshore bond coupon payment. Meanwhile, the Hong Kong-listed company has not confirmed yet whether it has paid an US$83.5m semi-annual coupon due today on its US$2.025bn 8.25% 2022s. The bond's covenants have a 30-day grace period before a missed payment is considered a default. In a filing on Wednesday, its property arm Hengda Real Estate Group said the annual coupon payment due September 23 on Rmb4bn 5.8% 2025s was "resolved via negotiation off the clearing house", without elaboration. While the nature of the agreement reached by Hengda with the holders of the onshore 2025s is unclear, the unconventional settlement indicates Evergrande "is actively negotiating with investors", research firm Lucror Analytics said. Online publication Asia Markets, citing sources close to the Chinese government, on Wednesday reported that a deal that would see Evergrande restructured into three separate entities was being finalised by the Chinese Communist Party and could be announced within days. "State-owned enterprises will underpin the restructure, effectively transforming the property developer into a state-owned enterprise," Asia Markets reported, without providing details. Shares in Evergrande rose 10.6% to close today's morning session at HK$2.51. Its US dollar bonds gained 4–5 points and were quoted at high 10s to low 30s. Meanwhile, in a filing, Chinese Estates Holdings, Evergrande's second-biggest shareholder, disclosed that it has sold 108.909m Evergande shares for HK$246.5m, with an average selling price of HK$2.26 from August 30 to September 21. Following the disposal, Chinese Estates still holds 751.091m Evergrande shares, representing approximately 5.66% of the issued share capital. Chinese Estates Holdings said that, depending on market conditions, it may exit the holding completely although it is expected to record total losses of HK$9.486bn for 2021 if the entire stake is sold, as the company's directors are "cautious and concerned about the recent development" of the Evergrande situation.
Indian enterprise software company Freshworks rose 32% in debut trade on Wednesday after raising US$1.03bn from a Nasdaq IPO. The shares ended at US$47.55, up from the issue price of US$36 per share. Freshworks priced the IPO above the revised guidance of US$32–$34, having launched the deal in a US$28–$32 range. Books were covered 20x with around 500 accounts participating. "Every long-only investor on the street was interested in buying the share," an ECM banker said. Up to 28.5m shares, or 10% of the capital, were on offer. There is a greenshoe option of 2.85m shares. Freshworks is backed by Accel Partners, Tiger Global and Sequoia Capital. The San Mateo-based but India-founded and substantively India-based company is a rival of Salesforce.com and Zendesk and legacy players such as Oracle and SAP. The deal is the largest listing of a software services company from India on any market. MakeMyTrip was the last Indian internet company to list in the US, through a US$70m IPO in 2010. Azure Power Global was the last Indian company to complete a US IPO, in 2015. Freshworks, founded in 2010, reported revenue of US$168.9m for the six months ended June 30, up 53% from US$110.5m in the same period last year. Its net loss narrowed 83% to US$9.8m from US$57m during the same period. CEO Girish Mathrubootham is the founder of the company. Morgan Stanley, JP Morgan and Bank of America are the lead bookrunners.
Match Group returned to the high-yield corporate bond market for the first time since its spin-off from its former parent company InterActiveCorp as demand for online dating continues to hold up throughout the pandemic. The online dating app company, rated Ba3/BB, launched a US$500m 10-year non-call five senior note at a 3.625% coupon via bookrunners JP Morgan, Citigroup, Goldman Sachs, BofA Securities, BMO Capital Markets, Credit Suisse, Deutsche Bank and Societe Generale. Together with funds raised from an equity offering, Match will use the bond offering to repurchase its US$517.5m 0.875% 2022 exchangeable senior notes. Moody's estimated the refinancing should leave leverage unchanged at around 4.6x. Strong demand allowed leads to raise the size of the offering by US$50m and tighten pricing from guidance of 3.75%-4%. Part of the strong reception reflects the avid appetite for new Double B deals. Though the average Double B offered a meager yield of 3.12% on Tuesday, Double Bs still have the potential to see further price gains if they cross over into investment-grade, according to market participants. “Even though the Double B market is sitting just 40bp wide of pre-Covid levels we still see value in Double Bs as there are a lot of names that will be returning to IG or will become first time rising stars. Even with spreads at these low levels you can meaningfully supplement your total return with just 25bp of spread compression," said a high-yield portfolio manager. At the same time, investors have become less focused on individual credit ratings as mandates loosened to accommodate the search for yield. "If the narrative is good and cash flow is positive, investors can get on board. Match sort of fits that profile," said Adam Coons, a portfolio manager at Winthrop Capital Management. The company reported US$140m in net income for the second quarter ending June 30, up from US$107m in the second quarter last year. Another boost for the credit is the sizable equity cushion around the company. Match's shares finished at US$153.65 per share on Wednesday, up from US$12 per share when the company was first listed in 2015, according to Refinitiv's Eikon. "The equity has gone up so much over the last couple of years. You do have some decent support there as a bondholder," said Coons. The resilience of online dating services during the pandemic helped Match secure cheap financing from the high-yield primary market last May when other junk-rated businesses were forced to pay up to raise cash as the Covid-19 pandemic eviscerated the US economy and corporate earnings. Back then, the company sold an eight-year non-call three unsecured note at 4.625%. Soon after, Match wrapped up its spin-off from InterActiveCorp (IAC) in July. The company's cash flows have swelled ever since as Match stopped making dividends to its main shareholder since the separation, said a Moody's analyst. In 2018, the company had paid a special dividend to IAC to the consternation of investors.
Match Group returned to the high-yield corporate bond market for the first time since its spin-off from its former parent company InterActiveCorp as demand for online dating continues to hold up throughout the pandemic. The online dating app company, rated Ba3/BB, launched a US$500m 10-year non-call five senior note at a 3.625% coupon via bookrunners JP Morgan, Citigroup, Goldman Sachs, BofA Securities, BMO Capital Markets, Credit Suisse, Deutsche Bank and Societe Generale. Together with funds raised from an equity offering, Match will use the bond offering to repurchase its US$517.5m 0.875% 2022 exchangeable senior notes. Moody's estimated the refinancing should leave leverage unchanged at around 4.6x. Strong demand allowed leads to raise the size of the offering by US$50m and tighten pricing from guidance of 3.75%-4%. Part of the strong reception reflects the avid appetite for new Double B deals. Though the average Double B offered a meager yield of 3.12% on Tuesday, Double Bs still have the potential to see further price gains if they cross over into investment-grade, according to market participants. “Even though the Double B market is sitting just 40bp wide of pre-Covid levels we still see value in Double Bs as there are a lot of names that will be returning to IG or will become first time rising stars. Even with spreads at these low levels you can meaningfully supplement your total return with just 25bp of spread compression," said a high-yield portfolio manager. At the same time, investors have become less focused on individual credit ratings as mandates loosened to accommodate the search for yield. "If the narrative is good and cash flow is positive, investors can get on board. Match sort of fits that profile," said Adam Coons, a portfolio manager at Winthrop Capital Management. The company reported US$140m in net income for the second quarter ending June 30, up from US$107m in the second quarter last year. Another boost for the credit is the sizable equity cushion around the company. Match's shares finished at US$153.65 per share on Wednesday, up from US$12 per share when the company was first listed in 2015, according to Refinitiv's Eikon. "The equity has gone up so much over the last couple of years. You do have some decent support there as a bondholder," said Coons. The resilience of online dating services during the pandemic helped Match secure cheap financing from the high-yield primary market last May when other junk-rated businesses were forced to pay up to raise cash as the Covid-19 pandemic eviscerated the US economy and corporate earnings. Back then, the company sold an eight-year non-call three unsecured note at 4.625%. Soon after, Match wrapped up its spin-off from InterActiveCorp (IAC) in July. The company's cash flows have swelled ever since as Match stopped making dividends to its main shareholder since the separation, said a Moody's analyst. In 2018, the company had paid a special dividend to IAC to the consternation of investors.
For many investors it appeared ESG concerns went out the window on Wednesday as the market lapped up British American Tobacco’s inaugural hybrid bond. Even before IPTs were announced, bankers had been confident that – despite the fact that many investors, especially those in France and the Netherlands, will not buy tobacco - the transaction would go smoothly, given the yield that the issuer would likely end up offering. This confidence was not misplaced. Bank of America, Citigroup, Deutsche Bank and Santander opened books on a €1bn PNC5.25 and €1bn PNC8 at 3.375% and 4.125% area yields. At these IPTs, the company was offering up a senior/sub spread – in swap terms – of 275bp on the shorter tranche and 290bp on the longer note, much bigger than on other recent hybrids. On those the spread has been typically less than 200bp and often in the mid-to-low 100s, according to a syndicate banker away from the deal. “They have the roadshow feedback in their pocket so no doubt this is the right context of clearing level for the ESG-unfriendly risk,” he said. At guidance books were above €1.8bn on the shorter leg and €2.6bn on the longer, allowing leads to ratchet in pricing to set final terms at 3.125% and 3.875%. Following pricing, the senior/sub spread stood at around 250bp and 265bp, based on the banker's fair value estimates for comparable senior notes. The attraction of BAT’s bonds becomes apparent when compared to what similarly rated hybrid issuers provide. For comparables, the syndicate looked to subordinated notes from the likes of VW, Eni and Bayer, which were offering yields from 1.77% to 2.41% and senior/sub spreads from 140bp to 195bp. BAT's senior paper is rated Baa2/BBB+ and at a subordinated level carries Ba1/BBB- ratings. The corporate decided to add hybrid debt to its capital structure to help strengthen its balance sheet and support its deleveraging efforts. Investors will also compare tobacco credits to other consumer-orientated issuers, said bankers, over which tobacco gives a notable pick up. BAT has a euro senior curve out to March 2045, with leads highlighting €800m 1.25% March 2027s, €850m 3.125% April 2028, 3.125% €600m March 2029 and €1.25bn 2.250% January 2030 as relevant pre-announcement comps. These notes were seen yielding 0.62%, 0.84%, 1.09% and 1.24%, while the average yield on the iBoxx EUR Consumer Goods Index stood at 0.47% at Tuesday’s close, according to Eikon. This isn’t the first time in recent history that the European market has proven itself open to tobacco-related hybrid debt. In September 2020, Japan Tobacco issued €500m 2.375% 60.5 non-call 5.5s and €500m 2.875% 63-year non-call 8.25s that attracted combined orders of €5.4bn. As well as the value on offer, investors like the predictable cashflows of tobacco companies.
JDE Peet's, the world's largest coffee and tea company by revenue, made its debut in the US dollar corporate bond market on Tuesday raising US$1.75bn in three tranches. The bond offering, rated Baa3/BBB-/BBB-, was the latest expansion of the company's capital markets activities after it issued a debut €2bn bond in June this year and completed a refinancing of its €6.5bn bank debt facilities in March that was tied to sustainability targets. JDE Peet's printed a US$500m 0.80% 2024 at 42bp over Treasuries, a US$750m 1.375% 2027 at 67bp over and a US$500m 2.25% 2031 at 97bp over. The company drew US$7.4bn of demand, with US$2.1bn of orders for the three-year bond, US$2.8bn orders on the five-year and US$2.5bn on the 10-year, according to IFR data. Since an IPO on the Euronext in Amsterdam in May 2020 the Dutch/US company has cleaned up its capital structure to bolster its investment grade credentials and is focused on deleveraging, according to analysts at CreditSights. Net leverage improved to 2.98x net debt to adjusted Ebitda at the end of the first half of 2021, the company said, down from 3.23x at the end of the 2020 financial year. Total sales increased 4.2% on an organic basis as at-home coffee product sales delivered strong growth of 4.9%. Away-from-home coffee sales however showed 0.7% growth, with consumption starting to rebound in some areas as restrictions ease, offset by new lockdowns in other markets. Active bookrunners on Tuesday's bond deal were Bank of America, Citi, Deutsche Bank, JP Morgan and Santander.
For many investors it appeared ESG concerns went out the window on Wednesday as the market lapped up British American Tobacco’s inaugural hybrid bond. Even before IPTs were announced, bankers had been confident that – despite the fact that many investors, especially those in France and the Netherlands, will not buy tobacco - the transaction would go smoothly, given the yield that the issuer would likely end up offering. This confidence was not misplaced. Bank of America, Citigroup, Deutsche Bank and Santander opened books on a €1bn PNC5.25 and €1bn PNC8 at 3.375% and 4.125% area yields. At these IPTs, the company was offering up a senior/sub spread – in swap terms – of 275bp on the shorter tranche and 290bp on the longer note, much bigger than on other recent hybrids. On those the spread has been typically less than 200bp and often in the mid-to-low 100s, according to a syndicate banker away from the deal. “They have the roadshow feedback in their pocket so no doubt this is the right context of clearing level for the ESG-unfriendly risk,” he said. At guidance books were above €1.8bn on the shorter leg and €2.6bn on the longer, allowing leads to ratchet in pricing to set final terms at 3.125% and 3.875%. Following pricing, the senior/sub spread stood at around 250bp and 265bp, based on the banker's fair value estimates for comparable senior notes. The attraction of BAT’s bonds becomes apparent when compared to what similarly rated hybrid issuers provide. For comparables, the syndicate looked to subordinated notes from the likes of VW, Eni and Bayer, which were offering yields from 1.77% to 2.41% and senior/sub spreads from 140bp to 195bp. BAT's senior paper is rated Baa2/BBB+ and at a subordinated level carries Ba1/BBB- ratings. The corporate decided to add hybrid debt to its capital structure to help strengthen its balance sheet and support its deleveraging efforts. Investors will also compare tobacco credits to other consumer-orientated issuers, said bankers, over which tobacco gives a notable pick up. BAT has a euro senior curve out to March 2045, with leads highlighting €800m 1.25% March 2027s, €850m 3.125% April 2028, 3.125% €600m March 2029 and €1.25bn 2.250% January 2030 as relevant pre-announcement comps. These notes were seen yielding 0.62%, 0.84%, 1.09% and 1.24%, while the average yield on the iBoxx EUR Consumer Goods Index stood at 0.47% at Tuesday’s close, according to Eikon. This isn’t the first time in recent history that the European market has proven itself open to tobacco-related hybrid debt. In September 2020, Japan Tobacco issued €500m 2.375% 60.5 non-call 5.5s and €500m 2.875% 63-year non-call 8.25s that attracted combined orders of €5.4bn. As well as the value on offer, investors like the predictable cashflows of tobacco companies.
Caisse Francaise de Financement Local won the demand stakes at the long-end of the covered bond market on Wednesday, attracting a €2.5bn-plus order book for the longest bond in the sector since January 2020, a deal that overshadowed Achmea Bank's debut in the soft bullet format. The French issuer closed its funding for the year on a high. It priced a €750m eight-year at 1bp through mid-swaps on books over €1.2bn while a €500m 25-year had books of more than €2.5bn and priced at 12bp over. "Decent demand. Pretty quick execution. It's really encouraging to see issuance at the long end is working currently," one banker said. While ABN AMRO and De Volksbank had successfully tested the 20-year part of the curve earlier this month, Caffil's 25-year was the first to extend that far since January 2020, according to IFR data. The 25-year tenor fitted with Caffil's funding requirements. "We had the opportunity to explore this new territory. Following yields rising since summer this 25-year transaction provided us with the kind of value that attracted investors," said Olivier Eudes, the head of ALM and financial markets Caffil/SFIL. Credit Agricole, Commerzbank, ING, Natixis and Nord/LB opened books at mid-swaps plus 3bp area for the three-year and 12bp/14bp (WPIR) for the 25-year. At 1bp through, market participants said the eight-year landed on top of fair value. Opinions on the 25-year varied however with the leads seeing a final concession of 2bp-3bp, while some bankers saw it around 6bp. "It landed where we expected it to. We were even surprised by the demand the 25-year tranche got," the banker said. For this year the global funding target for Caffil/SFIL is €8.2bn, out of which €5.8bn has now been completed by Caffil. SFIL is expected to tap the market by the end of the year, subject to market conditions. Making the switch For Achmea, which was making the switch from a conditional pass-through structure to a soft bullet one, demand was lower albeit decent at over €1.1bn for a €500m 15-year. "It's interesting to see there is less reception for lower rated issuers," the banker said. Achmea is rated A- by S&P and the deal has an expected AAA rating, also by S&P. Barclays, Deutsche Bank, DZ Bank, HSBC, ING, and Rabobank started at plus 9bp area guidance which offered around 15bp versus EU bonds and over 30bp versus the Dutch sovereign, according to ABN AMRO analysts. The spread was set at 8bp. "Perhaps it wasn't the best idea to go head-to-head with Caffil," said a second banker. "Investors did not want to participate until the spread was set." Achmea is the latest Dutch name to transition from a conditional-pass-through to a soft bullet covered bond programme, a format that is supported by the Eurosystem and which enables issuers to execute longer-dated debt and broaden their investor base.Sweet spot Meanwhile, Kommunalkredit Austria picked the sweet spot for its return to covered bond space - having been absent for four years - and got close to fivefold demand for a €250m seven-year public sector covered bond. "It got one of the strongest oversubscription levels that we have seen after the summer on the covered bonds side," the second banker said. "A lot of price discovery was involved given that they don't have any outstanding bonds and there aren't that many Single A rated covered bonds out there. Investor feedback was pointing towards a double-digit start." DZ Bank, Erste Group, Helaba and Raiffeisen Bank International were able to compress pricing aggressively to plus 15bp from a 22bp area start with €1.2bn of the demand good at reoffer. "This is a success for them, considering it's a little bit more difficult to generate interest for sub-benchmark trades as we saw with Wuestenrot on Tuesday," a third banker said.
JDE Peet's, the world's largest coffee and tea company by revenue, made its debut in the US dollar corporate bond market on Tuesday raising US$1.75bn in three tranches. The bond offering, rated Baa3/BBB-/BBB-, was the latest expansion of the company's capital markets activities after it issued a debut €2bn bond in June this year and completed a refinancing of its €6.5bn bank debt facilities in March that was tied to sustainability targets. JDE Peet's printed a US$500m 0.80% 2024 at 42bp over Treasuries, a US$750m 1.375% 2027 at 67bp over and a US$500m 2.25% 2031 at 97bp over. The company drew US$7.4bn of demand, with US$2.1bn of orders for the three-year bond, US$2.8bn orders on the five-year and US$2.5bn on the 10-year, according to IFR data. Since an IPO on the Euronext in Amsterdam in May 2020 the Dutch/US company has cleaned up its capital structure to bolster its investment grade credentials and is focused on deleveraging, according to analysts at CreditSights. Net leverage improved to 2.98x net debt to adjusted Ebitda at the end of the first half of 2021, the company said, down from 3.23x at the end of the 2020 financial year. Total sales increased 4.2% on an organic basis as at-home coffee product sales delivered strong growth of 4.9%. Away-from-home coffee sales however showed 0.7% growth, with consumption starting to rebound in some areas as restrictions ease, offset by new lockdowns in other markets. Active bookrunners on Tuesday's bond deal were Bank of America, Citi, Deutsche Bank, JP Morgan and Santander.
The HY bond primary is the only corporate bond game in town today as the IG primary takes a breather on Fed day. US stocks opened sharply higher for a second day as the markets looked beyond the problems in China and concerns about the global economy. The benchmark 10-year US Treasury yield was hovering around 1.32%. The Federal Reserve concludes its two-day FOMC meeting today with the policy announcement and Fed Chair's presser this afternoon. Markets expect some sort of guidance on tapering, but no decision on when rates would be raised. On Tuesday, nine IG deals totaling US$6.9bn were priced, pushing monthly IG issuance to US$129.873bn, according to IFR data. And six HY issuers raised US$5.765bn in the primary market yesterday, according to IFR. After a rocky Monday, the primary markets stepped up yesterday, but the road ahead will have its challenges. “There is a difficult four to five weeks ahead of us to get through some Washington noise and what the Fed is doing on tapering, along with delta beginning to slow its pace," said Tom Joyce, global head of investment banking capital markets strategy at MUFG. "We’re also heading into a long cold and flu season that brings the risk of additional virus mutations. But I think credit markets will be more resilient than most other asset classes in that type of scenario." The average IG bond spread remained unchanged at 91bp on Tuesday and the HY spread tightened by 6bp to 317bp, according to ICE BofA data. HIGH GRADE The IG primary market is on pause today ahead of the conclusion of the Federal Reserve's FOMC meeting later today. No deals are expected to price. However, Bill Ackman's fund Pershing Square Holdings (rated BBB+/BBB) mandated leads this morning for a euro and dollar senior unsecured in intermediate tenors, with investor calls to start on Thursday. Markets are expecting an update on the timing of the tapering of the Fed's stimulus policies, which is expected to pave the way to a conversation on rate rises. Corporate bond markets are well poised to hold up through this next interest rate cycle, say analysts, thanks to the strength of demand for spread products and clear communication from the central bank. “Credit spreads can do very well when the Fed is tightening, as long as it doesn’t take the market by surprise, and this is the most telegraphed, slowly executed policy transition from the Fed in the last 40 years,” said Tom Joyce, global head of investment banking capital markets strategy at MUFG. Nine issuers raised US$6.9bn on Tuesday, led by a debut dollar deal from US/Dutch coffee company JDE Peet's which raised US$1.75bn in a three-part trade. HIGH YIELD Borrowers continued to pile in to the high-yield primary market on Wednesday, taking advantage of the placid market conditions after Monday's stock volatility. Around US$2.35bn from five new deals are expected to price on Wednesday. Online dating services company Match Group is offering a US$500m 10-year non-call five senior note for Wednesday. Personal loans provider World Acceptance is pricing a US$300m five-year non-call two senior note. Infrastructure asset manager Fortress Transportation and Infrastructure Investors will price today a US$400m tap of its 5.5% 2028 senior unsecured note. Real estate investment trust Brookfield Property REIT launched on Wednesday a downsized US$750m 5.5-year non-call two senior secured offering for 4.5%. Industrials manufacturer Wabash National announced a US$400m seven-year non-call three senior unsecured note for Wednesday. Three deals were announced for later this week. Healthcare fax company Consensus Cloud Solutions announced a US$805m two-part senior unsecured note containing a five-year non-call two and a seven-year non-call five for Friday, as part of its spin-off from parent company J2 Global. Bearings maker Roller Bearing Company of America is marketing a US$500m eight-year non-call three senior unsecured note for Friday. Insurance compan
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