Mizuho names Wheatcroft European debt market head

Is the meltdown in corporate bonds over? The spectacular turnround in the US new-issue markets over the last five trading days suggests it may be.Almost US$22.5bn of high-yield and investment-grade deals were priced last week, by 20 issuers spanning the entire length of the credit spectrum, from Triple C rated Quicksilver to Double A plus GE Capital. All of them had to start off with double-digit new-issue concessions – and even more than 120bp in the case of Allegheny, a Baa3/BBB– rated corporate in the beaten-up metals and mining sector. Even GE Capital was forced to swallow a double-digit new-issue concession of around 12bp–15bp at the pricing spread.But thanks to stable Treasuries, calming words from Fed Chairman Ben Bernanke and a well-orchestrated recovery strategy executed by underwriters, those concessions at pricing were tighter by Friday. By the end of the week, the average new-issue concession in the investment-grade market was 11bp, with an average 13bp tightening from initial price thoughts to launch.By Thursday, several deals came with books of more than US$10bn, as investors watched virtually every transaction for the week trading better in the aftermarket.That included the better quality names such as Oracle, whose US$1bn 3.75% 10-year tranche was 18bp tighter from its 110bp pricing.Money also started to flow back into both high-yield and investment-grade funds during the week.“There’s a ton of money out there, simple as that,” said Vincent Murray, head of investment-grade syndicate at Mizuho.  “A lot of the deals you saw this week had been waiting for several weeks to get done, so when they finally saw the window they didn’t wait around.”Investors still need temptingBut the market has not recovered entirely, warn bankers.“If you come with a 5bp NIC at the initial thoughts stage, you aren’t going to do well,” said one syndicate manager.“Deals are only doing well because initial thoughts are starting out 20bp–25bp back of fair value. The fear that you could walk into work tomorrow and have everything turn on you is still there, and investors want to be compensated for that.”The rejuvenation of the US high-yield market was particularly welcomed by those companies that together had more than US$10bn of  bonds to place for  acquisition financing.The ability to do large high-yield deals had been crippled by investors hoarding cash for redemptions. To raise funds to buy new issues, investors were selling bonds from their existing portfolios, which drove secondaries even wider.Hopes that they might actually get to price before hitting up against their cap rates were first raised last Wednesday, when, for the first time in weeks, investors returned to the market in big enough size to have a positive impact on secondary levels.Deft movesBut as much as investors’ return pivoted around rate stability, the turnround was also the result of underwriters deftly timing, pricing, sizing and executing deals to ensure success built upon success.The investment-grade market’s four-session hiatus in issuance was broken last Monday, for instance, by two of the safest possible trades a syndicate desk could offer: two first mortgage-backed offerings from high-quality utilities Duke Energy Indiana and PPL Electric.Rather than frightening investors off, a 25bp overnight lurch upwards in the 10-year Treasury to 2.75% convinced investors on Monday morning that the worst of the rate fallout was behind them, at least for now.Pension funds and insurance companies that had been waiting for rate stability before buying paper that now hit their yield bogies drove demand. Both Duke and PPL began with initial price thoughts 25bp–30bp wide of comparables, on small deals.Duke received US$3bn of orders for its US$500m of three-year floaters and 30-year first mortgage backed bonds and PPL US$2.5bn for its US$300m first mortgage backed issue.“It was smart to start off with those two,” said one investor. “It doesn’t get safer than that.”More borrowers d

It’s surprising how quickly Asian issuers have decided that they are ready to pay up to get back in the bond markets. Though yields may be volatile for a while, some are clearly taking a view that they will be paying more if they wait too long. Others just really need the money.In the case of Indonesia, the first Asian issuer to pull the trigger on a US dollar bond in more than a month, both would surely have been powerful motives. The South-East Asian nation has a growing budget deficit to fund, and plans for at least one more global offering before the end of the year. Waiting too long was never an option.Many others, from Korea Finance Corp to Indonesia’s Multipolar, are readying their offering circulars or even testing the waters.In years gone by, Asia’s international issuers – mainly government-linked entities or top blue-chip companies – have been slow to agree to any upwards price revision, often leading to long gaps between flurries of deals. Old market hands would have been forgiven for expecting a similar pattern this time around.Instead, Indonesia’s 10-year benchmark should be a reminder to other Asian issuers that rates are more likely to rise further than they are to return to record lows. Not only were the country’s funding officials happy to come to market expecting higher absolute yields, they were also happy to pay another 50bp to get the deal done.Indonesia may be a unique case but plenty of other Asian issuers have substantial funding requirements, whether to finance expansion plans or simply replace maturing debt after a surge in bond issuance in recent years.The long lag-time during which Asian issuers would refuse to pay what is required to access the global debt markets is becoming a thing of the past. With the rates outlook still uncertain, that is a welcome development.Rate of declineA year on from the first fine for Libor manipulation, which saw Barclays cough up US$450m to regulators, future ownership of the lending benchmark has finally been settled through a tender process run by the UK government.NYSE Euronext successfully fended off rival bidders to prise Libor from the clutches of the British Bankers’ Association – an industry group run by the very entities caught manipulating the rate for their own gain.But what actually happens to it now? In one sense, Libor is already an anachronism. There is no longer an unsecured interbank lending market left to speak of, at least not for the moment; so in a way Libor is a signpost in the desert, pointing to a town that doesn’t exist.Yet benchmarks have an extraordinary ability to live on. Spain’s Mibor continues to be published, after all – and it refers to a currency that became extinct more than a decade ago.And with more than US$300trn of over-the-counter derivatives contracts linked to Libor, and an array of long-dated assets including perpetual bonds, Libor will – at least in theory – be around forever.Which is more than can be said for the entity that will now run it. European politicians have approved a takeover of NYSE Euronext by US-based IntercontinentalExchange. By the time it takes control of Libor in early 2014, the bourse is likely to be a very different animal.From its roots as a near-defunct power bourse, ICE has risen from the ashes to become one of the key beneficiaries of reforms that push OTC derivatives through central clearing and electronic platforms.It has a near-monopoly for credit default swaps clearing and recently launched its own listed version of index CDS. Gaining control of around 150 Libor rates may be yet another step towards world (or at least, derivatives) domination. And that could open an entirely new can of worms.A friend like BenConditions have been near perfect for convertible bond issuance in recent months. The combination of low rates, rising equities and a more challenging high-yield market, plus an investor-base perpetually short of paper, means that each deal is hit with a wave of aggressive buying.Bankers and

Weak documentation language, aggressive amendment allowances, and the actions of questionable collateral managers are three of the top concerns of US CLO investors, according to a panel of buysiders speaking last Thursday at a Fitch Ratings/Thomson Reuters LPC CLO conference in New York.Vague documentation language and definitions can allow more covenant-lite loans into deals than expected, and issuers may have the ability to amend the rules to change a portfolio into something completely unlike that to which the investor originally agreed.“The amendment process is a problem, especially when managers slip things into documentation that we don’t know about after we’ve done due diligence on a whole other set of data,” said James Grady, structured products sector head for Deutsche Asset and Wealth Management. “It’s an issue of transparency, and optionality may not be priced appropriately.”“If there are amendments in deals, how are they executed?”, added Edwin Wilches, who oversees CLOs at Prudential Fixed Income. “Are they against noteholders? These are the types of things we have to ask ourselves.”There are many aspects of CLO documentation which are important to investors, the panel said, including the conditions to reinvest, manager flexibility and the size of the covenant-lite bucket, changes in control provisions, rules for Event of Default (EOD), and the amendment process or provisions.And they should not be so quick to change tack. Jeff Prince, a managing director at Babson Capital Management, said that collateral managers often “drift” to second-lien or middle-market loans.The panel also said that they must do due diligence into how managers are invested, and whether they have a strong track record.One recurring theme in the market is documentation language governing cov-lite buckets, which can often be misleading or vague.“The language is increasingly complex,” said Robert Zable, a managing director with GSO Capital Partners’ Customized Credit Strategies Group. “Depending on the language in the documentation, cov-lite buckets can be more than the headline number disclosed by the issuer.”Panelists said that limits on cov-lite buckets in new CLOs may reach as high as 70% during the second half of 2013. However, an audience of several hundred at the conference took a vote on the issue, revealing their belief that cov-lite limits would average in the 50% area.

Credit asset management and advisory firm Cairn Capital is the latest adherent to an online social network, DealVector, which calls itself the LinkedIn for structured finance transactions.“We’re the Match.com for the buyside,” said Mike Manning, the co-founder and CEO of the company, which offers an online venue for participants in all types of securitised deals to share important information while maintaining their privacy.“Our site is about increasing transparency in the market. This is a way for participants to share information, or concerns about issuers, or for investors to seek out a particular asset to purchase in order to grow their position.“Or perhaps they want to seek other investors on the same deal to form investor committees or get a vote, while avoiding unintended information leakage,” he said.Cairn subscribed to the platform last week, joining Eton Park Capital, Pine River Capital, Tetragon Financial Group, Perella Weinberg, the Lehman Brothers estate, and service provider Guggenheim Partners, to name a few of DealVector’s recent clients.The platform is mainly targeting investors in new and legacy CLOs and CDOs, but is also focusing on legacy RMBS transactions. In fact, a rep and warranty query was recently added to the site.“This is a more efficient way for RMBS investors in legacy deals to get together to enforce their rights,” Manning said, comparing it with the expensive full-page Wall Street Journal ads that companies such as CXA Corporation posted late last year to try to get investors to join its investigation into possible rep and warranty breaches. “That’s not an efficient way to find people.”DealVector is a user-generated site that offers deal participants the chance to connect – something that is quite valuable in an industry where information and knowledge can give them a competitive advantage.“Inability to communicate means a loss of efficiency in these markets,” Manning said. “This allows investors to find the needle in the haystack without alerting the entire haystack.”Confidentiality is a top priority for the site. Participants are given a numeric ID and do not post their entire portfolios; they are only identified to other participants via two “vectors”: the role of the person, and the particular deal that is being discussed.Manning and Dave Jefferds, the co-founder and COO, hope that the CLO industry will use DealVector to make the rejuvenated asset class more resilient.“When things went south and you had repricings, the inability of people to connect during the last crisis proved to be a real problem,” Jefferds told IFR. “What can make CLO 2.0 more resilient is better connectivity. We’re hoping that managers on new CLOs will begin to bake DealVector into the fabric of what they are doing: it’s one great way for the collateral manager to reach holders.”

Fannie Mae sold US$1bn of non-agency RMBS through a bid list last Thursday, and the word on the Street was that dealers took down quite a bit of it.Some was, however, reoffered and placed with insurance companies, according to traders with knowledge of the auction. The BWIC comprised high-dollar-price legacy trades.“It was a feeding frenzy, but the Street still owns a lot of it,” said one market player with knowledge of the sale.“Not sure if it was the pressure to perform for Fannie, or whether people are constructive on spreads, or even a pre-dovish statement from Bernanke. Or maybe they just overpaid because it was Fannie Mae? There are a few theories.”Most of the securities in question were block-sized and many comprise the entire tranche. Out of 41 line items on the current list, only nine were not the entire outstanding tranche size, according to Interactive Data.The first round of these liquidations by the GSEs occurred in mid-May, with Freddie Mac selling approximately US$1bn seasoned vintage private-label RMBS and Fannie Mae selling about US$2bn multi-family directed CMBS.Both lists were well received and managed to hit the marketplace just shy of the start of heightened fixed income volatility, Interactive Data said. The collateral composition of the large May 15 bid list consisted mainly of subprime and adjustable-rate prime or Alt-A loans, ID said.By comparison, last week’s list also had roughly a third each in subprime, Alt-A ARM, and Prime ARM collateral, with the small remainder coming in Alt-A fixed-rate and pay option ARM (POA) securities. It was conducted on an all-or-nothing basis.

JP Morgan revealed last Friday that its investment banking performance in the second quarter was weaker on lower trading revenues compared with the previous quarter. The division rebounded, however, from weak first-quarter underwriting to post some of its best fee numbers in years.The bank reported an 83% surge in equity underwriting fees compared with the same period last year. This was despite a 3% decline in corporate and investment banking revenues to US$9.9bn compared with the first three months of the year.A major distraction from the numbers was the intense focus on leverage ratios. Earlier in the week, US banking regulators unveiled plans to boost leverage ratios at the biggest US banks. JP Morgan, as the first such lender to report, had to admit that it was currently short of the proposed capital levels.Regulators had proposed a supplementary leverage ratio of 5% for the holding companies of the top eight US banks and a ratio of 6% for their bank subsidiaries. JP Morgan reported a leverage ratio of about 4.7% at the holding company level.While she would not disclose the ratio for the bank, chief financial officer Marianne Lake said the ratio was currently lower than it was for holding company.“We would have a further way to go,” Lake said during the bank’s earnings call. “As we said, we intend to be compliant at the holding company level by the beginning of 2015 and work on bank compliance shortly thereafter,” she said.Chief executive Jamie Dimon said the bank could meet the levels before 2015 but, with the ink barely dry on the leverage ratio rule proposal, he was reluctant to start taking actions that might affect customers far in advance of knowing the real final rules.“We’ll be able to do it pretty quickly when we know what it actually is,” Dimon said.He took the opportunity to express concern that the rules could put US banks at a competitive disadvantage. The Basel regulatory accord was intended to harmonise global rules, Dimon said.The move by US regulators to double leverage ratios was clearly no longer toward harmonisation, he said. “If one is 3% and one is 6%, it becomes just too big and over time it can have huge competitive effects.”Beating expectationsOverall, the bank easily beat expectations for the quarter with help from a larger than expected release of reserves. The bank reported net income of US$6.5bn in the quarter, up 31% from the US$5bn recorded a year earlier. The comparisons with the second quarter of last year were marred by the trades by the London Whale, Bruno Iksil, that cost the bank more than US$6bn.Profit from fixed income trading, FICC, slumped by 14% from the previous quarter to US$4bn but was up 17% from the same period a year earlier, with credit and spread-related products benefiting from less uncertainty and a stronger US housing market.Income from equity trading fell 3% compared with the previous quarter to US$1.3bn, but was up 24% compared with the year earlier quarter, with strong client flows in cash and equity derivatives. Analysts were expecting more weakness in each.“June [FICC] was a bit more challenging and so it wasn’t as strong as April and May,” said Lake. The bank attributed its better than expected performance to strong client flows throughout the quarter, the diversification of the business and trading risk discipline.Dimon said that following the slowdown in June, he expected better conditions in the third quarter.With the exception of merger and acquisition advisory, the bank’s fees from underwriting exceeded expectations. Fees from investment banking rose 42% to US$1.7bn from US$1.2bn a year earlier. That was also a 20% increase from the previous quarter.Fees from advisory slumped by 15% to US$304m in the quarter compared with US$356m a year earlier, but were up 19% compared with a sluggish first quarter.Fees from equity underwriting surged by 83% to US$457m from US$250m a year earlier. That was also a 67% improvement from the US$273m recorded in the previous quar

Last Thursday, Quiksilver, the outdoor lifestyle retailer, tapped the market with a US$500m dual tranche offering. The deal was split between US$250m five-year non-call 2.5 secured notes, which were whispered at 8.5% area and talked at 8.00%–8.25%, while the US$250m seven-year non-call three unsecured notes were whispered at 10.5% area, and talked at 10.25%–10.50%.The B2/CCC+ rated 7.875% notes due 2018, priced at 99.483 to yield 8%, were seen at 101–101.25. The Caa2/CCC+ rated 10% notes due 2020, priced at 98.757 to yield 10.25%,were up at 100.50–101.50.“The company has run into a bad patch with gross margins falling to 6.5% from 11.5%, so this is a bit of a recovery story,” said the investor. However, demand was heard to be good with the secured tranche well oversubscribed, he said.Proceeds will be used to redeem all of the outstanding 6.875% senior notes due April 15, 2015, to repay in full and terminate existing term loans and to pay down a portion of the outstanding amounts under the new asset-based revolver.Bank of America Merrill Lynch, Morgan Stanley and Wells Fargo led the offering.On Friday, American Equity Investment Life Holding Company priced its US$400m eight-year non-call four senior notes offering at 6.625% at par. The deal was launched late Thursday with talk emerging at 6.5%–6.75%. The issuer had attempted a US$250m eight-year non-call four senior offering in June but that deal was postponed due to market conditions.JP Morgan, Suntrust Robinson Humphrey, Citigroup, Deutsche Bank, RJ and FBR led the offering. Proceeds will be used to repay existing debt and for general corporate purposes.In the pipeline, RKI Exploration & Production’s US$350m eight-year non-call three senior unsecured notes offering is scheduled for early this week. Price talk has not emerged.Auto lender TitleMax Finance Corp is also on deck for this week with its US$500m in five-year non-call two senior secured notes to refinance existing debt. Jefferies and Morgan Stanley are joint bookrunners.Meanwhile, Gardner Denver will be the first out of the upcoming LBO crop to test the bond market. The global industrial equipment maker, which is being acquired by KKR & Co, is expected with a US$675m unsecured bond as part of the financing. The deal is likely to launch this week, while the US$2.725bn loan launched last Tuesday.“Gardner Denver will be a good test of the market as to where to price that kind of risk,” said one syndicate manager. An unofficial range in the high 8% area on the planned offering was making the rounds last week.

It was a tale of two halves last week in high-yield, which broke a seven-day streak without any new issuance on Thursday after dovish comments from Fed Chairman Ben Bernanke helped restore investor appetite for risk. “The market was waiting for a period of stability to put a price on things,” said one syndicate official, who added there was little hesitancy from investors to take down supply at the new higher levels as fears of more Fed-induced volatility began to subside.“Asset liability matching investors, such as insurance companies and pension funds which have struggled to achieve yield in particular found the normalisation of rates beneficial,” he said.As the US Treasury rates continued to ratchet lower – dropping some 19bp from the start of the week – the average price on the Barclays High-Yield Index climbed more than a point from Monday to 102.42 at Thursday’s close. The yield-to-worst moved lower to 6.35% at the end of the week, after reaching a high in late June of 6.97%.Another positive sign in the market is the reversal of outflows. Lipper reported a US$12.3m inflow into high-yield funds, following a US$448.8m inflow the previous week. While these numbers don’t offset the massive outflows seen in June, market players are encouraged. “High-yield has seen a lot of outflows, but I think what’s important is that we don’t necessarily need to see the same amount of money come back in for the market to do well,” said one high-yield strategist. “Even if we just see flat flows, I think high-yield will see a slight grind tighter in prices.”The recent volatility and July 4 holiday has put a dampener on new issue volumes this month, with just US$2.03bn priced so far in July – all of which came after Wednesday’s Fed meeting.Six deals priced for the week, which was welcome news, but deal flow still was mostly in the form of smaller tack-ons.“The market feels much better,” said one banker. “In talking to accounts, the tone is much more positive and there is a lot of discussion of what we have and what we can bring to market. But the consensus view is that the calendar, other than a few LBOs, is not going to have a ton of supply between now and Labor Day. But this will improve the bid in the secondary market.”The banker said his team had some deals that could go this week, but they are smaller, repeat issuers with mostly tack-on type offerings.After postponing its planned deal in June on unfavourable market conditions, American Equity Investment Life Holding Company wasted little time in utilising the newly opened issue window to get its bond offering done, while a higher-rated deal from fallen angel Best Buy and small taps of existing paper helped ease investors back into the fold.Best Buy, the world’s largest electronics chain, sold an upsized US$500m five-year SEC-registered Baa2/BB/BB– rated deal – its first bond offering since the company was downgraded to junk status by S&P last year.Despite feedback that initial price thoughts of 5.25% to 5.375% was already somewhat tight to the company’s outstanding curve, the terms were pushed further at official price talk to 5.125% area to final pricing at 5% at the higher size.With US$500m in bonds coming due this week, the split-rated fallen angel was expected to find good interest from investment-grade accounts looking to lock in yield and keep exposure in the name in view of the company’s intention to return to investment-grade status. Book size on the deal was US$2bn.Barclays, Citigroup and JP Morgan acted as active bookrunners, and RBS was a joint bookrunner.Best Buy’s turnaround efforts following the arrival of chief executive Hubert Joly, who took the helm last autumn, have been well-received by investors, with shares in the company hitting their highest level since July 2011 earlier this month.Proceeds of the deal will be used for general corporate purposes, which may include replacing the liquidity provided by US$500m of the company’s 6.75% notes that will mature and be re

Credit Suisse Asset Management’s new European CLO priced last week via BofA Merrill. The trade, called Cadogan Square V, was €309.25m in size.The €1.5m Class X came at three-month Euribor plus 100bp, the €142.5m Class A-1 at 135bp, the £25.5m Class A-2 at 135bp (these are all rated Triple A by Moody’s), the €10m Aa2 Class B-1 at 200bp, the €30m Aa2 fixed-rate Class B-2 at 3.5%, the €17.25m A2 Class C at 290bp, the €15.5m Baa2 Class D at 380bp and the €24.75m Ba2 Class E at 525bp. There is also €37.75m of sub notes.

The International Bank for Reconstruction and Development (World Bank), rated Aaa/AAA, issued a new 1.125% US$1bn four-year Global last Tuesday, the first deal of its fiscal year.Barclays, Citigroup and TD Securities priced the July 2017 bond at mid-swaps minus 8bp, in line with guidance, equivalent to Treasuries plus 52.1bp.Its closest comparable line was a 0.875% April 2017, an original five-year issued last year. Those bonds were bid at mid-swaps minus 9.2bp on Monday morning on Tradeweb, indicating the new bonds carried a premium of around 1bp.Leads, however, said the premium was slightly more attractive, spotting the April 2017s at mid-swaps minus 10bp at announcement.The final book size and distribution was not disclosed.World Bank’s fiscal year began on July 1 and it plans to raise US$25bn in 2013/2014, down from the US$40bn it raised in 2012/2013.World Bank was last in the market with a dual-tranche US$4.25bn 0.5% three-year and US$750m 2.125% 10-year in February via BNP Paribas, Goldman Sachs, HSBC and JP Morgan.

Five months into the commercialisation of its top drug, Amarin returned to the market with a US$160m block trade. The sale of 21.7m ADS shares should provide sufficient financing to carry the Dublin-based biotech through its capital breakeven point. Citigroup and Jefferies purchased the ADRs at US$5.60 each, and reoffered the lot at US$5.75. It is impossible to gauge the trade’s profitability for the investment banks, but the deal may have been successful. Amarin opened Tuesday’s session at US$5.61, trading up to US$5.79 before closing below the purchase price at US$5.58. Proceeds will be used to continue the commercialisation of Amarin’s top drug. Vascepa was approved by the FDA last July as a treatment for reducing high triglyceride levels (in adjunct with a proper diet) in adult patients with severe hypertriglyceridemia. After five months of marketing and selling Vascepa, over 7,300 clinicians have written Vascepa prescriptions.

On the supply front, it was all about the core at the start of last week. First off, the Netherlands tapped €2.12bn of its 1.75% July 2023s on Monday via the drip method. As the tap was closed just five minutes after it opened, there was clearly decent demand.Then, on Wednesday, Germany targeted the short end of the curve with a tap of the two-year benchmark Schatz, the zero per cent June 2015. It allotted a total of €4.102bn, with the Bundesbank retaining €898m – 18% – for market operations. The bid-to-cover ratio was 2:1, bang on the 2:1 seen at the inaugural auction of this issue on June 13. In terms of pricing, the average price of 99.87 was 1.5 ticks above the offered side of the market as the bidding deadline expired.On Thursday, Italy took centre stage in the periphery with taps of three and 30-year BTPs. The Tesoro sold a total of €4.846bn across the two issues, not far from the top of the expected €4bn–€5bn range.The three-year on offer, the 2.25% May 2016, attracted a bid-to-cover of 1.34 on a fill of €3.385bn, which was bang on the cover at the last auction of the bond on June 13. The 30-year, the 4.75% September 2044, which was syndicated in the middle of May, attracted a cover of 1.30 on the balance.As ever with Italian auctions, however, the key to investor demand lay in the pricing. The three-year priced at an average yield of 2.33%, which was 4bp through the offered side of the market as the bidding deadline expired. The average yield on the 30-year was 5.19%, a scant 1bp through the offered side.In view of the primary dealer concession, that was relatively weak, indicating a primary dealer-led affair with little investor demand, which may have been a consequence of S&P’s one-notch downgrade of the sovereign to BBB on Tuesday night.   This week, conventional eurozone sovereign supply should be in the region of €19bn, down slightly from the €20.86bn sold last week. Supply will be condensed into Wednesday and Thursday, when Germany, France and Spain dominate.Germany is first out of the supply gate, with a tap of the May 2023 Bund (expected size €4bn).Thursday will be the busiest day, when Spain tap three, five and 10-year Bonos – sizes of which will be announced on Monday. While, France will tap its two, four and five-year BTANs (€7bn) as well as eight, 11 and 27-year linkers (€1bn–€1.5bn).