IFR SNAPSHOT - IG primary continues to roll as offerings flow
The US investment-grade corporate bond primary is again stepping up its issuance pace with at least nine offerings slated for sale today, following the 13 deals yesterday, just days before the critical US May jobs report is due out.
No offerings are expected to price in the US high-yield primary today although six issues are in the pipeline.
Markets continued their daily gyrations yesterday, ending the day on a more positive note than when it started.
"Yesterday, the rates market saw a major rally after the ISM manufacturing print was noticeably weaker than expected," Deutsche Bank Research said in a report today. "That led to a fresh round of anticipation that the Fed would still cut rates this year, and it meant the 10yr Treasury yield (-11.1bps) fell for a 3rd consecutive day to 4.39%."
The S&P 500 gained 0.11% after being down 0.8% at its lows in the session.
"For equities, the second half of the US session proved much more optimistic than the first, with the S&P 500 eventually, after a big struggle, reacting more to the rate cut hopes than the weak growth data," Deutsche said.
The CME FedWatch Tool forecasts this morning a 99.9% probability of no fed funds rate actions during the June 12 FOMC meeting. However, for the September 18 meeting the probability for a rate cut increased to 55.3% from a probability of 51.3% on Monday.
This morning the US Treasury 10-year note yield is hovering around 4.36%.
US Economic data this morning – the JOLTS job openings and factory orders for April – could add to the momentum.
On Monday, 13 IG offerings were priced to start the month of June totaling US$11.325bn, according to IFR data. In the HY primary, one offering was priced totaling US$800m, the data show.
The average IG bond spread on Monday remained unchanged at 88bp for the fifth consecutive market session and the HY bond spread tightened by 3bp to 317bp, according to ICE BofA data.
Separately, Bank of America Research offered an overview of the state of corporate credit ratings in a report late yesterday.
"Net ratings change for IG bonds in May was a net upgrade of +$59bn (upgrades less downgrades, notional * notches), the strongest monthly ratings change since June 2023, up from a +$39bn net upgrade in April," BofA said. "Sectors with most upgrades in May included Energy, Utilities and Banks/Brokers while sectors with most net downgrades in May were Tobacco and Basic Materials."
HIGH GRADE
The US investment-grade market is set to face another packed session for new issuance. At least nine offerings are expected to price on Tuesday.
Insurer Global Atlantic is printing a 30-year non-call five junior subordinated bond, with IPTs for the hybrid trade set at 8.5% area.
US bank Citigroup is in the market with an 11-year non-call 10 senior unsecured note in a fixed-to-floating rate format.
Insurance brokerage Brown & Brown, utility Puget Sound Energy, air conditioning company Trane Technologies are targeting the 10-year area of the yield curve. Puget is also selling a 30-year secured green bond.
Medical technology company BD is selling a US$600m five-year senior unsecured note to finance its US$4.2bn acquisition of Edwards Lifesciences' critical care business.
MetLife's financing subsidiary, Japanese distiller Suntory Holdings and Pine Street Trust III are also in the market today.
LEVERAGE/HIGH YIELD
More junk-rated borrowers joined a growing pipeline of deals on Tuesday, making for a busy start to the month of June.
The Brink’s Company has set initial price thoughts of 6.75%-7% on a US$400m five-year non-call two offering, while Herc Holdings is talking 7% area on a US$500m five-year non-call two bond.
Both borrowers are eyeing Wednesday for pricing and are raising funding to refinance debt.
A total of six issuers are now readying pricings for this week as they seek to raise at least US$3.925bn between them.
STRUCTURED FINANCE
Asset-backed dealmakers are busy this week as they seek to bring nearly US$10bn of supply.
They kicked things off yesterday with a US$746.43m offering from equipment lender Stonebriar, which was met with keen demand. The US$286.23m Triple A rated three-year note came in at Treasuries plus 98bp, following guidance of plus 105bp-110bp.
Market participants are preparing deals backed by other assets. In the auto sector, for example, deals include a US$1.5bn prime loan securitization from BMW and a US$1.21bn subprime offering from Westlake.
It is also an active week for ESG supply. Data center operator Switch is in the market with a US$940.28m green bond, while fiber network provider Frontier Communications plans to sell a US$750m green issue. Renewable energy firm Solar Mosaic in the meantime has been showing investors a US$323.67m ESG offering.
LATAM
AES Andes started meetings with fixed-income investors yesterday ahead of a possible benchmark sale of US dollar green junior subordinated capital notes. The proposed issuance would total US$500m-$600m, according to Fitch.
Citigroup, Goldman Sachs and JP Morgan are mandated to arrange the potential sale of 31-year non-call 5.75 green hybrids.
Yesterday Bancolombia launched an offer to buy back its outstanding US$482m of 3% senior notes due 2025 and up to US$400m of its outstanding US$750m 6.909% subordinated notes due 2027. The early deadline is June 14; the offer expires July 2. Bank of America, Citigroup, and JP Morgan are the dealer managers.
Also yesterday, Fitch upgraded Autopistas del Sol's international notes to B+ from B, giving them a positive outlook. The upgrade reflects the expectation that metrics in 2024 will "significantly improve," given the completion of heavy capital expenditures that were scheduled through 2023, the ratings agency said.
LatAm sovereign five-year CDS yesterday widened 8bp for Mexico, narrowed 2bp for Brazil and moved little elsewhere in the region, according to Lucror Analytics.
EQUITIES
Pinnacle West Capital, the parent of Arizona’s biggest power company, raised US$475m late Monday from an upsized convertible bond.
Bank of America and JP Morgan priced the three-year CB at a 4.75% coupon and 20% premium after marketing the security through Monday at talk of 4.25%–4.75%, up 20%–25%.
The offering was upsized from US$450m at launch.
Pinnacle shares fell 2.5% on Monday to US$76.92, setting the conversion price of the new CB at US$92.30.
This was the latest in a series of CBs from IG-rated utilities, following deals from NextEra Energy, Southern Co and WEC Energy that all priced at the wide end of both coupon and conversion premium talk.
Trip.com launched the sale of a US$1.3bn five-year CB, allowing the Nasdaq and Hong Kong-listed Chinese online travel firm to repay debt and buy back up to US$400m of its Nasdaq-listed ADSs.
JP Morgan and Goldman Sachs are marketing the CB through Tuesday’s session at a 0.5%–1% coupon and 30%–35% conversion premium for pricing after the close.
Trip.com’s Nasdaq-listed ADSs closed Monday at US$51.74, putting them up 43.7% this year.
Structure Therapeutics is looking to cash in on investor enthusiasm for its new weight-loss drug through a US$400m-plus marketed follow-on stock sale.
Goldman Sachs, Morgan Stanley, Jefferies, Guggenheim Securities and BMO Capital Markets are marketing the sale of 8m ADSs for two days ahead of pricing late Wednesday.
Structure shares soared 54.2% to US$52.74 on Monday, more than triple the US$16.00 price it went public at in February last year, after releasing positive Phase IIa trial results for its oral weight loss drug earlier in the day.