IFR SNAPSHOT-Twenty issuers make for robust start in US primaries

8 min read
Paul Kilby

Issuance in the US credit markets - for both high-grade and junk deals - is continuing apace on Tuesday with at least 20 borrowers readying bond deals for pricing in the primary.

High-grade volume on Monday alone reached US$13.7bn, putting monthly issuance so far this month at US$88.571bn after last week’s record surge in volumes.

Junk-rated credits are also starting to catch up with high-grade, with close to US$3.5bn printed yesterday and another US$2.6bn in new supply expected today from seven issuers.

Yields on the 10-year US Treasury climbed to 1.65% earlier today, reaching their highest level since mid-August, as markets await decisions from the ECB this week, and the Fed later this month.

Meanwhile, spreads in the US corporate credit market continue to move tighter, with average high-grade and high-yield bond spreads narrowing 1bp and 5bp yesterday.

HIGH GRADE

The surge of US high-grade corporate issuance continues as at least 13 borrowers will add to the US$88.571bn in supply pumped into the asset class in just five days of trading.

The largest trades in the high grade market Tuesday include a four-part bond from Hospitality Properties Trust and a 31.5-year note from Prudential Financial to help fund its US$2.35bn acquisition of Assurance IQ.

Several utilities are also issuing, including Washington Gas Light Co, Florida Power & Light, Connecticut Light & Power, and Trans Canada.

Ford spreads widened by about 25bp on Monday and are moving out by double digits again on Tuesday following Moody’s downgrade to junk.

The American automaker still holds high-grade status at two of the ratings companies, but the move is reigniting fallen angel fears.

More than 60% of the US investment-grade market has at least one Triple B rating and 13% fall into the lowest rung, according to CreditSights.

CreditSights identified Dell, Broadcom, Kraft-Heinz, Macy’s, PEMEX and EQM as other potential fallen angel threats.

Separately, tobacco bonds have suffered a volatile week as the Centers for Disease Control and Federal Drug Administration warn of an outbreak of e-cigarette related deaths and push back on Juul’s marketing activities that claim the vape product is safer than cigarettes.

HIGH YIELD

Junk-rated credits have found their rhythm with seven more set to price after four issuers printed close to US$3.5bn in bonds yesterday.

Deals on the tape today are dominated by companies involved in the real-estate sector, including Beazer Homes USA, Brookfield Residential Properties, Extended Stay America and Hannon Armstrong, a sustainable infrastructure REIT.

Also on the roster are Sensata Technologies, a supplier of sensor and electrical protection products, WPX Energy and Spectrum Brands, a consumer products company.

Together those borrowers are expected to raise some US$2.6bn between them, with another US$1.9bn of deals sitting in the visible pipeline.

Issuers waiting to print deals are broadcaster Tegna Inc, components manufacturer Patrick Industries, food distributor KeHE and security services firm ADT Inc.

Recent issues are performing well with Cheniere’s new 4.5% 2029 being quoted a good point higher at 101.125, while Encompass Health’s new 2028s and 2030s up about 5/8 of a point at around 100.625 and 100.75, respectively, according to MarketAxess data.

STRUCTURED FINANCE

A handful of ABS are expected to price Tuesday as the market works through a growing pipeline.

Barclays, Citi and Deutsche Bank are expected to price SBA Communications Corp’s US$1.165bn cell tower ABS later today, SBA Tower Trust 2019-1C. Guidance was set at 140bp-150bp over five-year Treasuries.

Credit Suisse and JP Morgan are also expected to price Avant’s US$328m consumer loan ABS this afternoon.

Guidance also emerged on Driven Brands’ second whole business ABS of the year, HONK 2019-2. Sole bookrunner Barclays is expected to price the US$275m deal soon this week and has set price guidance at 4.10%-4.25%.

A presale for another debut whole business ABS also emerged on Monday. Blackstone-owned Servpro is looking to raise US$525m to finance its home restoration and reconstruction services business - a market that is expected to grow as extreme weather incidents increase. Barclays is sole bookrunner on the trade.

The mortgage side of the market is also active. A new US$1.06bn conduit CMBS, BANK 2019-BNK20, was announced Monday.

The deal could be the first of a flood of conduit deals with 13 expected to price over September and October, totaling US$12.2bn according to Bank of America Merrill Lynch research.

LATAM

The second week of September has so far seen less activity than last week with just two issuers in the pipeline, as of Tuesday morning.

Alpek, the Mexican petrochemical company, is wrapping investor meetings this afternoon and could come to the market with a 144A/Reg S senior unsecured note as soon as Wednesday.

While Petrobras’s liability management exercise, an exchange of its existing bonds for new debt due in 2030, expires on Friday, September 13th.

“Normally, you have a very busy September,” said a New York syndicate banker. “I think we will see more supply.

One roadblock to increased issuance may be impending meetings from the European Central Bank.

The ECB will meet later this week and it is expected to provide policy guidance, potentially including stimulus packages.

EQUITIES

Genetic testing company 10x Genomics, one of six IPOs slated to price this week, this morning increased its IPO price range by 12% at the midpoint in response to strong demand.

The company is now looking to price 9m shares at US$36-$38 each on Wednesday night, up from US$31-US$35 at launch and increasing potential proceeds to US$342m at the top-end of the range.

JP Morgan, Goldman Sachs and Bank of America Merrill Lynch expect to close the order books at 4pm this afternoon, giving them all of tomorrow to sort through allocations and price after the close tomorrow night.

Meanwhile, software developer Cloudflare is drawing demand above the US$10–$12 range ahead of pricing Thursday night.

Goldman Sachs, Morgan Stanley and JP Morgan still have time to increase the range in a new filing tomorrow morning before the up to US$420m IPO prices on Thursday night.

There is still no sign of The We Company, We Work. The latest word is that the multi-billion IPO could launch as soon as tomorrow morning, though doubts linger about investor demand for the offering. JP Morgan, Goldman Sachs, Bank of America Merrill Lynch and Barclays are joint bookrunners.

Last night’s follow-on activity was light in comparison to last week’s wave of deals.

A pair of sponsor blocks from asset manager Hamilton Lane (US$162m) and online education company Laureate Education (US$253m) were among the highlights.

Healthcare REIT Omega Healthcare Investors prefunded a portion of its acquisition pipeline with US$302m of new equity. Bank of America Merrill Lynch reoffered 7.5m shares at US$40.32, versus the US$41.36 last sale.

The deal was structured as a forward sale, with BAML borrowing the shares from third parties and reselling them into the market. Omega has 12-months to settle the forward sale with common stock or cash.