IFR SNAPSHOT - US IG primary soldiers on amid the market ructions
Another busy session lies ahead for the US investment-grade corporate primary with at least 11 offerings for sale, including a multi-tranche issue from mining giant Rio Tinto.
The wave of offerings today follows a robust session on Monday, when six issues were priced in the midst of the stocks meltdown.
Over in the high-yield primary today, at least three issues are expected to price. And while the secondary stock market is rattled, the ECM primary is chugging away, with two M&A-related deals priced on Monday night.
Meanwhile, markets today continue to twist and turn with every drop of news on tariffs, trade wars and recession talk. US stocks opened the session sharply down to mixed as investors' unease triggered by recession fears weighs again.
"You wouldn't want to watch a re-run of yesterday's session as the risk-off move showed no sign of abating with the S&P 500 (-2.70%) posting its worst day YTD for the third time in six sessions while the NASDAQ (-4.00%) saw its worst day since 2022," Deutsche Bank Research said in a report this morning. "The moves cascaded across global markets."
"With US equities losing ground yesterday and growth concerns mounting, that saw investors pour into US Treasuries with the 10-year yield falling -8.8bps to 4.21% and trading another -3.8bps lower in Asia this morning," Deutsche Bank Research said. The 10-year note yield was hovering around 4.22% as the US markets opened this morning.
For the session ahead, it will be another slow day for the economic data calendar and its releases, with just the NFIB Small Business Optimism Index released at 06:00am New York time and the Job Openings and Labor Turnover Survey (JOLTS) out at 10:00am. And a reminder that no Fed speakers are scheduled this week because they are in a blackout period before the FOMC meeting next week.
The IG primary yesterday saw six issues priced totaling US$4.6bn, lifting March IG supply to US$77.8bn, according to IFR data.
The average IG new issue concession on Monday was 5.50bp and the average order book was 3.26x, according to IFR data. The average progression from initial price thoughts to pricing yesterday was 21.25bp tighter.
In the HY primary yesterday, two issues were priced totaling US$1.2bn, pushing HY volume for March to US$9.35bn.
The average IG bond spread widened by 2bp to 91bp on Monday and the HY bond spread gapped out by 19bp to 316bp, according to IFR data. US yields across asset classes were mixed yesterday.
"The selloff was pretty consistent across the board," Deutsche Bank Research said. "Credit spreads saw a noticeable widening, with US HY spreads (+19bps) posting their biggest daily jump since August, and also reaching their widest level since September."
HIGH GRADE
The US investment-grade bond market is expected to draw at least 11 deals on Tuesday, following yesterday's six trades.
A large chunk of today's offerings are for the Yankee market. UK tobacco company British American Tobacco is issuing a three-part deal, comprising seven, 10 and 30-year tenors. Meanwhile, global mining giant Rio Tinto is coming with an eight-part bond sale to help finance its US$6.7bn purchase of Arcadium Lithium.
Canadian fertilizer company Nutrien is marketing two and seven-year bonds. Meanwhile, Scandinavian lender Nordea Bank announced a three-year senior preferred offering, in both fixed and floating-rate format.
Telecommunications REIT American Tower is issuing five and 10-year bonds. Insurer MetLife announced an offering for a 30-year non-call 10 subordinated note.
Logistics company JB Hunt Transport Services, Chilean utility AES Andes, government contractor Booz Allen Hamilton, insurer Prudential Financial and utility Edison International also plan offerings.
LEVERAGE/HIGH YIELD
Junk-rated borrowers continue to come off the sidelines despite a rockier backdrop for the broader markets.
Yesterday saw the average high-yield spread hit 316bp, its widest level since September last year, according to ICE BofA data.
Today, three issuers – Aris Water, JW Aluminum Continuous Cast and Viridien – are expected to price dollar deals, largely to refinance debt.
Aris Water is preparing a US$400m five-year non-call two offering, while JW Aluminum is readying a US$350m five-year non-call two issue.
Meanwhile, Viridien is looking to raise US$950m through two 5.5-year non-call two bonds, one denominated in US dollars and the other in euros.
The France-based provider of imaging solutions, earth data and seismic equipment has set price talk in the areas of 10.25% and 8.75% on the dollar and euro tranches, respectively.
STRUCTURED FINANCE
Dealmakers are pushing forward with this week's calendar of securitizations amid ongoing market volatility.
Yesterday, Carvana and Travel + Leisure announced a US$594m prime auto securitization and a US$350m timeshare deal, respectively.
Moving to guidance were Tricolor's US$328m subprime auto issue and Wheels' US$696m fleet lease offering. Tricolor's US$228m split-rated one-year senior note has guidance of US Treasuries plus 90bp-95bp, while Wheels' US$660m two-year Triple A rated tranche was guided at US Treasuries plus 67bp-70bp.
In the CMBS market, TPG announced a US$963m CRE CLO offering yesterday, which is its first offering in this format since 2022.
LATAM
AES Andes is expected to price a seven-year unsecured note today. Price thoughts are in the 240bp area over US Treasuries.
The South American energy company hired Bank of America, JP Morgan and SMBC as active bookrunners.
Pampa Energia has scheduled a shareholders' meeting to discuss an increase in the company's bond shelf to US$2.1bn from US$1.4bn, according to a local filing.
EQUITIES
The US equity market kicked off another front-loaded week with two M&A-related deals priced on Monday night.
Private equity firm One Rock Capital Partners liquidated shares of newly formed Primo Brands shares via a US$1.33bn follow-on offering.
Morgan Stanley and JP Morgan priced 45m shares sold at US$29.50, a 6.7% file-to-offer discount from the US$31.61 last sale price Friday, ahead of the deal launch.
Primo, which owns Poland Spring and 29 other bottled water brands, bought back 4m shares on the offering, helping to smooth deal execution.
This was the first public stock sale in Primo since it merged in November with the One Rock-backed BlueTriton Brands, formerly Nestle’s North American bottled water business.
One Rock reduced its stake in Primo to 46.2% from 57.5%. The firm is prohibited from selling again for 60 days.
Alkami Technology secured US$300m late Monday from the sale of a five-year convertible bond it is using to fund an acquisition.
JP Morgan and Citigroup priced the CB at a 1.5% coupon and 37.5% premium, the aggressive ends of 1.5%–2% and 32.5%–37.5% price talk marketed for one day.
The fintech software provider is using the money to fund the US$380m cash cost of its acquisition of Mantl, which it agreed to last month and expects to close by March 31.
Alkami, whose software is used by banks and other enterprises to onboard customers, saw its shares fall 12.6% on Monday to US$23.87, setting the conversion price on the CB at US$32.82.
To help cushion the blow of that sell-off, the company purchased a capped call to offset dilution recognition from the CB up to a share price of US$47.74, double the reference price and above the US$42.29 annual high share price in November last year.
LCI Industries is taking a similar approach toward a US$400m five-year convertible bond, using a portion of the proceeds to purchase a capped call and spending up to US$50m to buy back stock.
Wells Fargo, Bank of America and JP Morgan are marketing the new CB for one day on Tuesday at 2.75%-3.25% coupon and 25%-30% conversion premium for pricing after the market close.
As part of that marketing effort, the banks are negotiating the repurchase of a portion of a US$460m principal 1.125% CB that matures in 2026 and is convertible at share prices above US$159.40.
The auto equipment maker’s shares were down 4.7% early in Tuesday’s session to US$91.50, their lowest level since late 2022.
Capped calls, in which the CB’s embedded call option is repurchased and warrants are sold at a higher strike, are a useful tool for convertible issuers to offset the impact of selling at historically low share prices.