IFR SNAPSHOT-Earnings season means blackouts and lower supply

7 min read
John J. Doran

Earnings are rolling out, which means bond supply will taper off a bit as company blackouts emerge ahead of reports.

Meanwhile, recapping this week, Thursday was active with three deals totaling US$3.2bn, pushing weekly issuance to US$23.85bn. April supply now sits at US$47.4bn, swelling year-to-date issuance to US$375.143bn.

Absorbing those bonds are investors with a relentless appetite for corporate debt. For the week ended April 10, Lipper US Fund Flows reported investment-grade funds net inflows at US$3.469bn and high-yield funds net inflows at US$654.822m.

HIGH GRADE

JP Morgan and Wells Fargo kicked off earnings season Friday by beating analyst expectations, but many corporates will remain in blackout for a thin week of investment grade primary volume, syndicates told IFR.

Bonds from both banks are moving tighter as JP Morgan boasted higher interest income and gains from its debt underwriting business, while Wells Fargo boosted its consumer lending business - particularly auto loans.

Next week is expected to be front loaded with just US$10bn-US$15bn in volume amid corporate blackouts and a shortened week for Good Friday.

Chevron made a splash Friday with the announcement of a US$33bn acquisition of mid-sized petroleum company Anadarko, which will help expand Chevron’s drilling sites, according to an investor presentation.

Chevron will take on an additional US$15bn in outstanding Anadarko debt and plans to pay it down through asset sales to total US$15bn-$20bn between 2020 and 2022.

Disney bonds are also moving tighter in the secondary following the announcement of its widely anticipated streaming plans as it enters the fray with Netflix, AT&T and YouTube for consumer’s subscription dollars.

The platform, called Disney+, will cost US$7 a month and the company is aiming for 60 million to 90 million subscribers by 2024 after it arrives in the US on Nov. 12.

By comparison, Netflix costs US$9-US$16 and boasts a global subscriber count of 139 million - 60.5 million of which are in the US.

HIGH YIELD

Australia-based mining company Mineral Resources is expected to price a US$750m eight-year non-call three year unsecured deal on Friday after holding investor meetings earlier this week.

Whispers on the trade, which will refinance existing debt, are 7.75-8%.

It closes a relatively slow week for issuance with just three deals pricing so far for a total amount of US$3.975bn. All of them, with the exception of a dividend recapitalization for office supplies company Staples, have been refinancing trades.

Crestwood Midstream priced a US$600m deal Thursday at par to yield 5.625%, which was tight of whispers, and it was trading up almost a point in secondary this morning.

Staples’ unsecured bonds, however, are still underperforming in the secondary, bid at 99.75 on Friday morning, according to MarketAxess. It priced at par Tuesday.

STRUCTURED FINANCE

The securitization primary market continued its strong run on Thursday with five new deals priced.

In a bustling ABS sector, the senior tranche of a subprime auto deal from U.S. Auto Finance was priced at the tight end of guidance at EDSF+110bp, while Castlelake Funds priced an US$867.6m aircraft receivables deal in line with guidance at 4% for the senior notes.

New deals from the relatively quiet CMBS market were also priced. Freddie Mac sold a new US$1.38bn multifamily deal, with the senior notes priced at IS+48bp.

Prime Finance sold a US$649.6m commercial real estate CLO, which had a static rather than managed portfolio.

The senior tranche was sold at 97bp, 3bp tighter than the same tranche on the last static deal which was sold by Exantas Capital Corp on April 4.

In a further sign that the recovering private label RMBS market is maturing, bond investor PIMCO is marketing its first securitization backed by residential mortgages that fall outside the Qualified Mortgage box, BRAVO 2019-1.

The firm is using the securitization market to finance a US$382.45 portfolio of seasoned prime home loans that it acquired from Capital One Financial Corporation, which is no longer an active lender.

LATAM

Following a busy week, Friday will end on a quieter note for the LatAm primary market with no major issuance expected.

Wednesday was especially active with a US$1bn deal from Panama, as well as Peruvian consumer company Alicorp’s PEN1.64bn trade, and Brazilian steel company CSN US$1bn issuance.

Yesterday also saw some action with two issuers pricing deals - Consorcio Transmantaro priced a US$400m bond, and Panamanian Global Bank issued a US$300m trade.

But next week is likely to be slower.

Panama’s state-owned energy company Empresa de Transmision Electrica announced a roadshow beginning today with Bank of America Merrill Lynch and Scotiabank arranging meetings. The company is rated Baa1 by Moody’s and Fitch.

Outside of deals, demand for LatAm credits remains fairly healthy - roughly US$695m of cash flowed into emerging market funds for the week ending April 10, according to Lipper, the second straight week of inflow after a string of outflows.

EQUITIES

Uber Technologies has come out of hiding with a US$1bn placeholder IPO filing that is expected to reach US$10bn and target a US$90bn-$100bn valuation.

Morgan Stanley and Goldman Sachs are the top line bookrunners on the offering, which consists of primary and secondary shares.

Uber has to wait 15 days before launching the IPO roadshow, putting it on a timeline to launch the week of April 29 and price the deal by early May.

Axcela Health, a biotech, filed documents this morning for an US$86.3 IPO, becoming the latest in a progression of companies to take aim at NASH.

NGM BioPharmaceuticals and Genfit recently went public on prospects for their NASH programs, and Cirius Therapeutics filed documents earlier this year for a US$100m IPO.

Jumia Technologies, the African e-commerce/fintech, secured US$196m on its IPO last night, a day later than originally planned due to a regulatory hold-up.

Morgan Stanley, Citigroup, Berenberg and RBC Capital Markets were forced to re-circulate new financial information that Jumia disclosed Wednesday.

Despite the delay, the banks priced a fully sized 13.5m ADSs at US$14.50, the midpoint of a US$13.00–$16.00 marketing range.

The placement was anchored by a sizable allocation to a single investor, according to sources involved in the underwriting.

Mastercard Europe also agreed to invest €50m in a concurrent placement.

Jumia is scheduled to debut on the NYSE this morning under the symbol “JMIA”.