The US IG primary expects at least seven deals today, with HP Inc. the marquee offering.
Monday saw another brisk day for IG offerings with 13 deals priced totaling US$12.65bn, pushing monthly volume to US$60.75bn, according to IFR data. Year-to-date issuance stands at US$1.088trn.
Bank of America said the average new issue concession increased to 2.6bp on Monday from 1.5bp last week, while the average break performance softened to -3.2bp on Monday from -8.2bp last week. And CDX IG widened 1.75bp, while CDX HY dropped $0.52pts.
BofA also said IG corporate bond spreads have retraced 81% of the recent spread widening - from the tights on February 19 to the wides on March 23.
"Given very strong technicals in US IG credit spreads should continue to outperform," the bank said.
HIGH GRADE
HP Inc. is leading the market on Tuesday with a three-part deal, which will mark its first bond issuance since Hewlett Packard split into two companies in 2015.
While Hewlett Packard Enterprise, which focuses on servers and networking equipment, has been in the market multiple times, this is the first time the printer and computer business HP inc. is offering new bonds.
HP is shopping a three-part deal while tendering for four notes maturing this year and next with a total amount outstanding of US$2.548bn.
The new notes also follow on from a failed attempt by printing company Xerox to take over HP in a hostile takeover. The bid failed amid new pressures from the economic fallout of the pandemic.
Other issuers on the day include investment manager Principal Financial, real estate insurance company Fidelity National Financial, Credit Agricole, Texas-based Westlake Chemical and real-estate investment trusts American Campus Communities and Healthpeak Properties.
These issuers are coming into a favorable market where spreads have tightened to 156bp over Treasuries from 400bp over in late March.
On Monday's deals books built multiple times over subscribed and several issuers priced with negative new issue concessions.
HIGH YIELD
The high-yield primary should see three deals price today.
HTA Group has set price talk on a US$700m 5.5 year non-call two senior unsecured note at 7.375%. The B2/B rated healthcare focused real-estate investment trust is looking to refinance existing debt.
Nuclear energy component producer BWX Technologies announced a US$400m eight-year non-call three senior unsecured, to repay term loan debt and a portion of its revolving credit facility.
Auto parts supplier American Axle is expecting to price a US$400m senior unsecured eight-year non-call three to redeem its 6.625% 2022 notes.
Four issuers raised US$2.65bn in the primary on Monday with three deals upsized.
The largest was from Sirius XM Radio which raised US$1.5bn of 10-year non-call five senior unsecured notes at 4.125%, inside price talk of 4.25% area. The deal was upsized from an initial US$1bn.
Those notes have dropped slightly in the secondary market however, last trading at 99.625 for a yield of 4.17% on Tuesday, according to MarketAxess.
There were 10 defaults in the US high-yield index in May on a total face value of US$23bn bonds, according to CreditSights on Monday, which is surpassed in terms of face value only between December 2008 and May 2009.
"We compare the recent trend in the US HY default rate with the trend leading into the 2008/2009 downturn," the research company said. "Both periods show a rise in default rates that steepened at the same time as spreads were rallying."
STRUCTURED FINANCE
Primary activity in the US asset-backed securities market is expected to ride on its recent upswing on Tuesday following the robust US$1.257bn auto lease offering from General Motors on Monday.
The auto ABS sector remains active with Santander mandating a US$942.82bn subprime loan deal. nL8N2DI5MD
Strong investor demand for prime auto ABS supply like the latest GM issue has narrowed their spreads back to levels prior to the market sell-off in March stemming from worries about the Covid-19 outbreak.
Spreads on subprime auto ABS have also tightened but remain elevated on lingering concerns that riskier borrowers may begin to fall behind on their car payments if the jobs market does not recover quickly.
"The current level of unemployment strongly suggests weaker credit performance. So far, this weakness has been mitigated by the federal government stimulus, lenders' relief programs and possibly, a better than expect recovery," Bank of America analysts wrote in a research report.
Amur Equipment and Massachusetts Educational Financing are moving closer to pricing a US$226.322m equipment securitization and a US$211.28m private student loan transaction, respectively.
LATAM
Primary LatAm borrowers are starting the second week of June on a quiet note without any issuance for the week as of Tuesday.
Two issuers remain in the pipeline but no deals have yet priced, a stark difference from high activity last week which saw about US$7.53bn equivalent in volume.
Meanwhile holder's of Ecuador's 2024 bonds have formed an investor group, the committee announced on Monday. It is the second group to assemble a creditor committee.
The sovereign is on track to restructure some US$17bn of external debt in the coming months.
Ecuador's 7.95% 2024 bond traded up slightly on Monday at a price of 52.820, up from 52.065 last Friday.
Debt talks are being conducted ahead of the expiration of a grace period in mid-August of the country's deferred coupon payments.
EQUITIES
Used car e-commerce platform Vroom last night completed a rare IPO trifecta by accelerating pricing by two days, increasing the shares sold and pricing above range to score US$467.5m to fund its ambitious growth plans.
Goldman Sachs, Bank of America, Allen and Wells Fargo last night placed 21.25m shares at US$22 apiece. Vroom hiked the price range on Friday from US$15-$17 to US$18-$20 while keeping the offering size at 18.75m shares.
The IPO was originally scheduled to price Wednesday night, but strong demand amid hopes Vroom might prove a similar experience to larger rival Carvana (whose shares are up 650% from their 2017 IPO price) allowed underwriters to bring forward the deal.
Vroom is slotted to begin trading at approximately 10:00 am on Nasdaq under the symbol “VRM”.
There is no sign of “June gloom” in the US equity market after a busy May that saw more than US$70bn raised in US ECM.
A flurry of deals launched last night, in addition to potential blockbusters, Royalty Pharma’s US$1.96bn IPO and California utility PG&E Corp’s plans to raise US$5.75bn from a combo equity, equity-linked offering as part of its pending exit from bankruptcy.
Aptiv, the former Delphi Automotive, is looking to raise US$2bn from equal-sized offerings of common stock and a mandatory convertible bond.
Goldman Sachs, Citigroup, Barclays, Bank of America, Deutsche Bank and JP Morgan are the joint bookrunners.
They are marketing the financing for one day for pricing tonight off last night’s US$87.50 closing price of Aptiv’s common stock.
The three-year MCB is being marketed at a dividend of 5.25%-5.75% and 17.5%-22.5% premium to reference on the common pricing.
Okta is the latest software developer seeking to capitalize on recent stock gains through a CB offering.
Goldman Sachs, JP Morgan and Morgan Stanley are marketing a US$1bn six-year CB at a coupon of 0.125%-0.625% and a conversion premium of 32.5%-37.5% for pricing after tonight’s close.
Okta’s underlying shares closed at US$185.15 last night, up 64.5% year-to-date.
Software high-flyer Bill.com is in the market with its first follow-on offering that will be marketed for two days for pricing after the market close Wednesday. The timeline corresponds with the expiration of the lock-up agreement associated with the company’s IPO in December.
Bill.com’s offering of 3.25m new shares and 2.75m secondary shares is being priced against current levels that are 200% above December’s US$22.00 IPO price.
Learning platform Pluralsight is taking out a day of marketing before pricing a US$259m stock sale on behalf of selling shareholders.
Pluralsight closed at US$22.14 last night, above its US$15 IPO price in 2018 though below the US$29.25 level of its March 2019 secondary offering.
Morgan Stanley, Barclays, Bank of America and SunTrust Robinson Humphrey are marketing 11.7m shares or 8.2% of outstanding for pricing after the market close tonight.
There are no shortage of biotechs seeking to raise money.
Last night saw a trio of biotech offerings from Fate Therapeutics (US$175m), Retrophin (US$100.8m) and Replimune (US$100m) raise money overnight and Glaukos (US$250m) and Jazz Pharmaceuticals (US$850m) both launch convertible bonds that will be marketed throughout today’s session.