IFR SNAPSHOT - February IG primary second busiest on record
The US investment-grade primary is ending the month of February on a quiet note, with no offerings expected today, but it did manage to earn the title of second busiest February on record.
The high-yield primary expects one issue to price today. Activity in the ECM arena was brisk this week, with sponsor secondaries picking up in the post-earnings window.
The week and the month end for the economic data calendar with a handful of reports out this morning, starting with the January Advance Economic Indicators and the Personal Income and Outlays reports at 8:30am New York time, then the Chicago PMI at 9:45am. There is one Fed speaker today.
Next week, the February jobs report "will be a key test of economic resilience after a raft of weak confidence and retail reports to start the year," BNP Paribas said in a report late yesterday. "We look for a rise in nonfarm payroll employment of 170k and a steady jobless rate."
Activity in the IG primary ended the month of February on a busy note, with nine IG offerings priced yesterday totaling US$7.05bn, lifting supply for the week to US$52.05bn, exceeding expectations of US$34bn, and increasing monthly volume to US$166.515bn, the second busiest February for IG issuance on record, according to IFR data.
The average IG new issue concession on Thursday was 4.30bp and the average order book was 3.36x, according to IFR data. The average progression from initial price thoughts to pricing was 22.91bp tighter.
In the HY arena yesterday, one issue was priced totaling US$550m, lifting weekly issuance to US$1.35bn and February volume to US$20.2165bn.
The average IG bond spread edged out by 1bp to 85bp on Thursday and the HY bond spread was unchanged at 281bp, according to ICE BofA data. US yields across asset classes were higher on Thursday.
"IG index spreads widened 1-1.5bp at the index level yesterday, finally breaking out of the 7bp range that prevailed since the November election, a span of 80 trading days," BMO said. "That’s the longest IG index spreads have been contained to a range of just 7bp since 2013."
Even with the upside breach to the recent range, BMO noted, resilience remains the predominant theme in IG markets year to date, with spreads only 3bp wider on the year despite political uncertainty and worrisome economic data on both sides of the Fed’s mandate.
For the week ended February 26, Lipper US Fund Flows reported that the all short-intermediate investment-grade debt funds/ETFs net inflow was US$2.003bn and the all corporate high-yield debt funds/ETFs net inflow was US$1.359bn. The all domestic equity funds/ETFs net inflow was US$24.153bn and the all non-domestic equity funds/ETFs net inflow was US$279.22m.
HIGH GRADE
The US investment-grade bond market is not expected to draw fresh offerings today, after a total of nine deals priced yesterday.
The pipeline for next week is building up. Semiconductor company Synopsys mandated Bank of America, HSBC and JP Morgan to arrange fixed-income investor calls today for a potential senior unsecured transaction, which would mark its debut into the high-grade market.
Steelmaker Nucor asked Bank of America, JP Morgan, US Bancorp and Wells Fargo to hold fixed-income investor calls today, too.
LEVERAGE/HIGH YIELD
One more junk-rated issuer emerged on Friday during what has been a slow week in the primary markets.
Olin, a maker of chemical products and ammunitions, has announced a US$600m eight-year non-call three bond sale ahead of pricing today.
Initial price thoughts are set in the area of 6.75% on a deal that will help the company refinance notes maturing in 2025 and 2027, as well as other types of debt.
The company, which is rated Ba1/BB+/BBB-, has an outstanding 5% 2030 that changed hands yesterday at a dollar price of 95.25 to yield 6.131%, according to MarketAxess data.
Olin joins Wex and Wesco Distribution as the only issuers to access the primary this week.
Yesterday Wex priced an eight-year non-call three offering at par to yield 6.50%, the tight end of price talk in the area of 6.625%.
The bond, which was upsized to US$550m from US$500m, drifted higher on the break to 100.125 yesterday, according to MarketAxess data.
STRUCTURED FINANCE
It looks as if March will be a busy month for US structured finance after the pipeline of new offerings of asset-backed securities grew steadily over the past week.
In the coming month, investors can expect deals from several sectors, including autos. General Motors, Hyundai Capital America, United Auto Credit, World Omni and Volvo Financial Services are among the transport-related borrowers working on new issues.
Equipment ABS trades are in the works, too, from Commercial Credit, Dext Capital, GreatAmerica, Deere and North Mill Equipment Finance. And data center operators Centersquare and DigitalBridge-backed Switch are also gearing up to raise capital.
LATAM
No Latin American issuers are expected to price bonds today.
Market players anticipate subdued activity from Latin American corporate issuers next week due to the Carnival holidays and the fact that many would-be borrowers are in blackout periods.
Arcos Dorados announced today its intention to redeem all of its outstanding 5.875% senior notes due 2027 on April 4.
EQUITIES
Sponsor secondary sales are picking up in the post-earnings window.
Private equity firm Advent International late Thursday sold another chunk of its stake in CCC Intelligent Solutions through a US$436m block that was competitively bid out to four banks.
Bank of America secured the best economics in offloading 42m shares in the P&C insurance software firm at US$10.38, a thin discount to Thursday’s closing price of US$10.43. Goldman Sachs, Jefferies and JP Morgan, the other banks that bid on the block, also acted as bookrunners.
CCC bought back 7m shares sold in the offering using cash on hand. Advent’s stake fell to 14.8% from 21.2% (to about 97m shares), though it sold below the US$11-plus prices it fetched from multiple CCC blocks last year.
Sponsors Leonard Green & Partners, TPG and Partners Group took some money off the table via a US$699.2m block sale of shares in Life Time.
After a competitive process, JP Morgan and Bank of America reoffered 23m shares or roughly 10% of the health and fitness club operator at US$30.40, the bottom of the US$30.40–$31.30 range and a 2.9% discount to last sale.
Life Time’s shares fell 1% to US$31.30 on Thursday following the release of its quarterly earnings but had still soared more than 40% this year heading into the offering.
The sponsor group sold 18m shares while the balance of 5m came from Life Time CEO and founder Bahram Akradi, who sold in part to fund the tax bill from the exercise of options.
Thursday’s sponsor blocks followed JAB’s US$2.4bn sell-down of its stake in Keurig Dr Pepper on Wednesday night, marking US ECM's biggest block trade so far this year.
Hedge fund investor Daniel Loeb also harvested US$57.5m from reinsurer SiriusPoint through an overnight stock sale.
The week’s ECM activity also included convertible bond refinancings from Unity Software (US$600m), BridgeBio Pharma (US$500m) and Cheesecake Factory (US$500m), taking the total raised in US ECM this week to US$5.2bn.