IFR SNAPSHOT-Weekly IG volume busts through forecasts

8 min read
EMEA
John J. Doran

We saw 18 IG deals priced and handily beat volume estimates for a week that saw markets rebound on renewed faith in a rate cut at the end of July.

No IG offerings are expected on Friday.

The high-yield primary is seeing a bit of action this week, with seven deals priced so far totaling US$3.155bn. One more HY deal is expected to price today.

Next week, the largest HY deal of the year so far - US broadcaster Sinclair Broadcast Group’s offering of US$4.875bn through a subsidiary - is expected to price.

Funds flows were also healthy this week.

For the week ended July 10, Lipper US Fund Flows reported an investment-grade funds net inflow of US$570.313m and a high-yield funds net inflow of US$618.708m, its fifth consecutive week of inflows.

On Thursday, four IG deals were priced totaling US$9.75bn, pushing weekly volume to US$32.95bn, according to IFR data.

Year-to-date issuance stands at US$634.718bn, well behind the volume sold in the same period in 2018, totaling US$699.015bn, according to IFR.

HIGH GRADE

With no issuance in the primary today focus turns to US bank earnings that kick off next week starting with Citibank on Monday.

Typically the first week of earnings brings a large bout of issuance, but bank supply is down in 2019 and corporate treasury desks will have to decide whether they should issue now or instead wait to see if the Federal Reserve cuts rates at the end of July.

Syndicates are expecting some US$25bn-US$30bn of new issuance next week, but self-funded banks could push those estimates higher.

“It’s certainly a risk on tone in the market,” one investor told IFR.

“It’s been a good market since May for credit and people remain yield starved across the globe.”

M&A supply continues to grow with a couple of small acquisitions.

Household items producer Colgate-Palmolive is acquiring skin care business Laboratories Filorga Cosmetiques for US$1.69bn while US public research company Agilent announced the purchase of cell imaging systems company Bil Tek Instrument for US$1.165bn.

HIGH YIELD

Scripps Escrow, a subsidiary of media firm E.W. Scripps Company, is due to price a US$500m 8NC3 unsecured bond today.

The deal has been launched at 5.875%, inside of price talk of 6% area, and upsized from US$400m.

The firm is issuing the bond to help finance the acquisition of assets from Nexstar Media Group.

Five issuers raised US$2.275bn in the primary market on Thursday, with testing and measurement system firm MTS Systems, drug developer Horizon Pharma, door maker Masonite International and chemical company Olin all issuing new debt. Builders FirstSource also priced a US$75m tap of its 6.75% 2027s.

The four new issues are all now trading around par although MTS Systems’ 8NC3 senior notes traded as high as 102 on Thursday, according to MarketAxess data.

Volume is expected to pick up next week with a US$4.875bn two-part offering from Diamond Sports Group, a subsidiary of Sinclair Broadcast Group, taking center stage. Pricing is expected on July 19.

Chemical company TPC Group will also be marketing a US$930m 5NC2 senior secured note next week, to repay existing debt.

STRUCTURED FINANCE

Pricing activity in structured finance has been light this week, but issuers across the market are lining up on the sidelines.

10 ABS, one CMBS and five RMBS have been mandated according to IFR data.

ABS issuers are expected to bring US$7.656bn of deals, according to IFR data.

Those include DLL 2019-2, which will be the first securitization sponsored by the finance arm of Indian farming equipment manufacturer Mahindra, according to Moody’s.

The sponsor, Mahindra Finance USA, is a joint venture between De Lage Landen Financial Services - an indirect wholly owned subsidiary of Rabobank - and Mahindra & Mahindra Financial Services.

Next week’s ABS pipeline is auto ABS heavy as regular issuers look to access the market early in the third quarter. Seven borrowers are expected to announce auto-related ABS transactions totaling US$4.5bn next week.

Overall, ABS volumes are off last year’s pace with US$128.627bn sold in the year to date versus US$140.331bn last year, according to IFR data.

LATAM

Lima Metro has been added to the pipeline of deals coming out of Latin America, with more mandates likely to come next week.

The Peruvian borrower has mandated leads JP Morgan and Goldman Sachs to conduct investor meetings ending on July 17.

Thursday saw one of the busiest days for the LatAm primary market so far this year, with five issuers printing dollar deals.

Telecom Argentina, EPM, Unifin, LatAm Airlines and Usiminas all seized borrower-friendly market conditions and the pipeline of deals remains robust.

“It is a constructive environment, it has been constructive for a long while. It’s been long time coming and conditions couldn’t have been any better for EM credit and for developed market credit,” said a syndicate senior syndicate banker.

The pipeline of deals for next week includes Lima Metro, Argentine YPF Energia Electrica, Mexican leasing company Docuformas, solar energy company Ergon Peru and Mexican REIT Terrafina.

Mexican state-owned issuer Comision Federal de Electricidad is also expected to enter the market at some point with a US$750m 2049 note, which has been rated Baa1 by Moody’s and BBB by Fitch.

EQUITIES

Two more IPOs launched early Friday to add to a summer onslaught of new issues.

Residential solar energy provider Sunnova Energy International set terms for an up to US$317.6m NYSE IPO, testing the mixed track record of solar energy offerings.

Sunnova plans to sell 17.6m shares at US$16-$18 each. Bank of America Merrill Lynch, JP Morgan, Goldman Sachs and Credit Suisse lead the underwriting effort.

Healthcare data analytics provider Health Catalyst launched an Nasdaq IPO that could see it raise up to US$138m from the sale of 6m shares at US$20-$23 each via Goldman Sachs, JP Morgan and William Blair.

Both offerings are expected to price post-close Wednesday, July 24.

They will come to market behind next week’s 10 IPO pricings plus the planned direct listing of leveraged radio station owner iHeartMedia.

More launches are likely early next week, from Livongo Health, ProSight Global, Oaktree Acquisition and Castle Biosciences.

The final pricing night of the week proved surprisingly busy, led by a US$500m block trade from Brookfield Infrastructure Partners, the public vehicle helping to fund the Brookfield complex’s US$8.4bn purchase (with Singapore’s GIC) of rail operation Genesee & Wyoming.

BIP sold 11.8m units at a US$42.50 fixed, a 3.3% discount to last sale. RBC Capital Markets, TD Securities, CIBC Capital Markets, Credit Suisse and Wells Fargo split a 4% underwriting fee.

In a change of pace, cannabis REIT Innovative Industrial Properties took full advantage of its soaring stock price to sell 1.3m shares (upsized from 1.25m shares) at US$126.00 each, an 8.4% discount to last sale for proceeds of US$163.8m.

The REIT’s shares have tripled this year as it has expanded its portfolio of cannabis cultivation and production real estate.