IFR SNAPSHOT-Waiting for the Fed

8 min read
John Doran

Markets and investors are bracing themselves for what could be the first rate cut by the US Federal Reserve in 10 years.

The cut is expected to be announced this afternoon at 2:00pm New York time and then shortly afterwards Fed Chairman Jerome Powell will speak at a press conference.

Markets are expecting a 25bp cut - although you-know-who would like more. Powell’s words on the potential for future cuts or other Fed views will provide the news of the day and the guidance sought by investors. Is it one and done? We’ll see.

Meanwhile, back at primary base camp, the IG market is idle and the high-yield arena expects to see one deal priced.

Structured finance is also in quiet mode.

In the run-up to Fed day, the IG market saw two deals priced on Tuesday totaling US$3.5bn, pushing weekly issuance to US$19.25bn and monthly issuance to US$97.319bn.


General Electric’s bonds were among the most heavily traded on Wednesday after the firm reported a loss in the second quarter, but raised its 2019 forecast for industrial free cash flow to between negative US$1bn and positive US$1bn, up from a range of negative US$2bn to flat.

Its 3.373% notes due 2025 tightened by 10bp and its 4.418% notes due 2035 came in by 9bp, according to MarketAxess.

Analysts at Bank of America Merrill Lynch said on Wednesday that the number of Triple B rated companies focusing on deleveraging and taking debt friendly action was growing, calming the fears raised last year of a glut of “fallen angels” in credit markets.

“Instead of all the fears of BBBs getting downgraded to HY, we are seeing the opposite - improving credit quality and undoubtedly many large capital structures ultimately ending up instead getting upgraded,” they said.

The trend also limits the potential upside to supply estimates in response to falling bond yields, they added.


Just one deal is expected to price in the US high-yield primaries on Wednesday as markets prepare for the Federal Reserve’s decision on rates and what is broadly expected to be the first cut in a decade.

The Advisor Group, a broker dealer network, has the market to itself after sitting on the sidelines a good week.

The borrower has re-emerged with a downsized US$350m 8NC3 but not before pushing out price talk to an all-in yield of between 11.50-11.75% and a coupon of 10.75%.

It has also tweaked terms after Covenant Review laid out a list of structural weaknesses, including what it called “pick your poison” provisions that allow the company to use restricted payments capacity to incur debt.

Leads had previously been marketing the deal, which is financing an LBO by Reverence Capital, at around 10% area.

This comes after Ardagh Packaging and Gems Education raised a total of US$2.2bn on Tuesday in deals that straddled both the dollar and euro markets.

Ardagh priced a US$500m 7NC3 senior secured bond at 4.125%, within price talk of 4%-4.25% and an US$800m 8NC3 unsecured tranche at 5.25%, the tight end of talk of 5.25%-5.50%

Gems also came with a US$900m senior secured 7NC3 at a yield of 7.125%, well insides talk of 7.50% area.


Vantage was the only issuer to price ABS on Tuesday with the firm selling a US$398m deal backed by three data centers. Barclays, Deutsche Bank and Guggenheim were able to bring pricing 10bp inside the tight end of guidance to land the five year notes at IS+140bp.

Small business lender Strategic Funding Source, which was rebranded as Kapitus in January, is out with a US$25m add-on to its previously issued US$105m SFS 2018-1 securitization of small business loans, according to Kroll Bond Ratings.

In the RMBS market, Fannie Mae sold a new credit risk transfer deal with the 1.25-year notes priced at 200bp over one month Libor.

Two new RMBS also emerged with Loan Star announcing a new non-performing loan transaction, VOLT 2019-NPL4, and New Residential announcing a new re-performing loan RMS, NRMLT 2019-RPL2.

Wells Fargo and Barclays announced a new US$804m WFCM-C52 conduit CMBS deal on Tuesday, while Citi, Goldman Sachs and Deutsche Bank also announced the US$1.092bn CGCMT 2019-GC41. Both are expected to price this week.


It looks like a quiet day for LatAm as issuers step back and wait for the Federal Reserve’s rate decision later this afternoon.

This comes after both El Salvador and Marfrig tapped the market on Tuesday raising nearly US$1.6bn between them.

Both saw decent price progression. Marfrig priced a US$500m 10-year at 6.625%, inside initial price thoughts of high 6s to 7%, while El Salvador printed a US$1.097bn 30-year at 7.125%, tight to IPTs of 7.5% area.

El Salvador, which had not been in the market for about two years, saw books hit around US$4bn as investors on the hunt for yield took a shine to the high-yield sovereign.

Barring any surprises from the Fed, bankers are predicting more activity from LatAm issuers in August and September as treasurers take advantage of strong conditions in EM.

“Even with the added supply and small concessions, deals are still performing,” said one banker. “I don’t think we will see the August slowdown until the end of the month.”

For now just one deal is in the visible pipeline, namely an up to US$1.1bn senior secured bond for MV24, a floating production storage and offloading (FPSO) vessel working offshore Brazil.


Shares of California utility Edison International raised US$1.9bn from upsized sale of 28m shares at US$68.50 each, securing funds that will mostly go into California’s new wildfire insurance fund.

A JP Morgan-led syndicate was able to increase the deal size from 25m shares at launch and price at a 3% all-in-discount after a day of marketing, a strong outcome considering the size of the deal.

Edison plans on using US$1.2bn of the proceeds to finance half of the required US$2.4bn upfront contribution from its Southern California Edison subsidiary to California’s new US$21bn wildfire insurance fund. The rest will come from the sale of new debt.

Tonight is all about IPOs, both new and recent.

Shares of high flying branded foods company Beyond Meat dipped 12.3% Tuesday to US$194.76 after launching a two-day marketed offering of 3.25m shares on Monday.

Goldman Sachs, JP Morgan and Credit Suisse agreed to lift the lock-up agreement from Beyond Meat’s IPO in May. The stock is still up 680% from the US$25.00 IPO price.

Software intelligence platform Dynatrace looks like the hot pick out of the three IPOs that are expected to price tonight.

Goldman Sachs, JP Morgan and Citigroup are guiding for pricing at the top-end or above the new US$13-$15 range.

The other IPOs that are expected to price tonight include biotech RAPT Therapeutics (US$80m) and cannabis grower Sundial Growers (US$140m).