IFR SNAPSHOT-Busiest June on record for US IG and HY issuance

12 min read
Americas, Emerging Markets, Asia
John J. Doran

The IG primary is open for business the last day of June and the end of the second quarter, with at least six deals expected to price on Tuesday.

On Monday, six deals hit the market totaling US$12.5bn, according to IFR. The average new issue concession declined to 10.5bp on Monday from 17.0bp last week, while the average break performance softened to 2.5bp tighter on Monday from 4.0bp tighter last week, according to Bank of America.

With US$168.221bn already sold so far this month, this is the busiest June of IG issuance on record, according to IFR. And, as of yesterday, the sixth busiest month for IG sales.

And this the busiest month ever for high-yield bond issuance.

By end of day today, this month could displace January 2017, which saw US$176.4bn of IG issuance. If that occurs, then four of the five busiest months ever for IG issuance would be in 2020, according to IFR.

The second quarter of 2020, with US$709.756bn, was the busiest quarter for IG issuance on record, surpassing by a wide margin the first quarter of 2020, according to IFR data.

As of end of day Monday, 2020 year-to-date issuance stood at US$1.196trn.

Separately, Bank of America observed in a report that the 144A segment of the US IG corporate bond market "has grown to US$1,426bn by index par value, or 20.3% of the overall market as of May 2020, while the average new issue tranche size has also increased to US$968mn."



HIGH GRADE

Six issuers are in the market Tuesday as companies look to squeeze in before the second quarter ends and corporate blackouts begin.

Confectionary foods maker Mondelez International is back in the high-grade market Tuesday looking to take advantage of the Federal Reserve's bond buying in the front end of the curve with a new two-year note.

Consumer goods have the fifth highest weight in the Federal Reserve's Broad Market Index secondary purchase program at 9% of total purchases, according to a CreditSights report.

The new offering is the Oreo maker's third of the year as the company has already raised US$2.5bn through four tranches in April.

Insurance companies continue to access the market this week as Guardian Life Global Funding is offering a new US$350m seven year.

The offering follows on from three insurers in the market Monday including Equitable Finance, AIG and a green bond from Met Life, of which the latter two each priced with a coupon of less than 1%.

Other issuers in the market Tuesday include French bank Societe Generale, Chinese social media network Weibo, Russian petrochemicals company Sibur and Peruvian financial services company Interbank.


HIGH YIELD

June closes out with at least four deals expected to price in what has been a record breaking month of issuance.

Month-to-date issuance of US$56.925bn as of Thursday ranks as the busiest month ever for high-yield bond issuance, according to IFR data.

HY issuance in 2020 has surged to US$214.9bn in the year-to-date, a huge increase from the US$132.7bn seen in the same period last year.

Full-year issuance in 2019 was US$273.4bn.

On Tuesday Winnebago Industries should add to the June tally today with its first high-yield bond offering.

The recreational vehicle maker is out with a US$300m eight-year senior secured note to pay down in full its term loan facility and for general corporate purposes.

ThyssenKrupp has increased slightly the dollar bonds in its leveraged buyout financing for its elevator business, which is also expected to close today.

The seven-year non-call three senior secured notes have been sized at US$1.67bn, up from US$1.655bn, and have price talk of 5.25%.

The eight-year non-call three senior unsecured notes have been sized at US$445m, up from US$440m, and have price talk of 7.625%.

Swiss sensor maker AMS closes books today on a five-year non-call two US$400m dollar note with a 7.00% coupon at an original issue discount of 99.

Gas and electric infrastructure company PowerTeam Services is expected to price today an US$100m add-on to its 9.033% senior secured notes due 2025.

Also announced today was a US$200m unsecured note from New Enterprise Stone & Lime, a privately-held construction materials supplier, and a US$400m five-year non-call two senior secured from Forterra Finance, a manufacturer of water and drainage pipe and products.

Both are expected to price tomorrow.


STRUCTURED FINANCE

The US structured finance market will likely come to a quiet quarter-end on Tuesday, with Freddie Mac expected to price the single-family credit risk transfer deal.

The second biggest mortgage agency upsized its deal to US$1.106bn from US$555m, signaling strong demand for the first CRT issue since the first quarter.

The Triple B rated M-1 tranche of Freddie's STACR 2020-DNA3 is talked at a spread of 155bp-165bp over swaps. This compared with the wide of 500bp seen in the secondary market in March, Wells Fargo data showed.

Meanwhile, bankers may squeak several other residential mortgage securitizations as the first half of 2020 draws to a close.

Oaktree and Invictus Capital have been pre-marketing their latest non-QM offerings, while Citigroup is readying its private label RMBS issue.

The RMBS sector has recovered from the depth of its March sell-off. Loan forbearance has spiked as borrowers have sought debt relief from mortgage lenders, but there is some evidence the level of forborne loans has peaked, reducing worries about a surge in delinquencies later this year.

"Things have been positive on the credit side of things," said one senior banker. "We are seeing investors getting more comfortable with the level of forbearance."


LATAM

Two issuers are pricing deals in the primary market on Tuesday, as borrowers take advantage of short week before the US Fourth of July holiday.

Brazilian railroad operator Rumo is selling a new green seven-year note today, with initial price thoughts set at mid-to-high 5%. Itau BBA, Morgan Stanley and Santander are global coordinators on the deal.

Peruvian bank Interbank is also selling debt on Tuesday, as it approaches investors with a new 10-year note initially talked at 4.375% area.

The deal is being led by Bank of America Securities and JP Morgan. It is expected to comprise a 144A/Reg S subordinated Tier II, 10-year NC5.

Interbank will be the second Peruvian bank to come to market in less than a week.

Last Friday, Banco de Credito del Peru priced US$850m of a 10NC5 2030 note at T+300bps.


EQUITIES

Less than two years after being taken private, business data analytics firm Dun & Bradstreet (D&B) is poised to return to public markets this week via an up to US$1.38bn NYSE IPO.

Goldman Sachs, Bank of America, JP Morgan and Barclays, the joint bookrunners leading a syndicate of 18 underwriters, closed the books yesterday afternoon and remain on course to price the deal after tonight’s close.

The offering of 65.75m shares is well-oversubscribed with no price sensitivity versus the US$19–$21 marketing range, bankers said.

Of course, there was similar talk ahead of leverage-backed grocery chain Albertsons’ disappointing debut last week, but D&B appears to be attracting orders from long-only mutual funds rather than relying hedge fund demand to maximize the price.

Albertsons rose 0.8% to US$15.57 in its second session yesterday but remains below its US$16.00 IPO price, making it one of the few big recent IPOs to disappoint.

D&B, which was taken private for US$7bn last year, is also highly leveraged but offers some distinct selling points.

D&B’s sponsors, led by Bill Foley’s Cannae Holdings, Black Knight and Chinh Chu’s CC Capital, are investing US$400m alongside the IPO.

Foley’s track record of success leading Fidelity National Financial and with IPOs in the past five years such as Ceridian HCM (2018) and Black Knight (2015) is also central to the D&B pitch.

D&B is taking out some US$1.27bn of preferred stock with a portion of the IPO proceeds but also repaying US$342m of other debt used to fund the buyout (the Albertsons IPO was all-secondary with no debt repayment).

GS Acquisition Holdings II, the Goldman Sachs-backed SPAC, put the wraps on its US$700m IPO last night after just one day of public marketing.

Joint bookrunners Goldman Sachs and Citigroup priced a full-sized offering of 70m units at US$10.00 apiece. The vehicle’s sponsors are purchasing 8m at-risk warrants for US$2.00 each, an increase from the US$1.50 price at filing.

GS Acquisition marks a turn towards a more aggressive, acquisition-friendly structure. Each unit comprises one share and one-quarter of a warrant, lower gearing than the one-share, one-third warrant structure originally filed.

Biotech SPAC Panacea Acquisition this morning launched a US$125m IPO for pricing after the close tomorrow night.

Cowen is the sole bookrunner for the placement of 12.5m units at US$10 apiece, with each unit comprising one share and one-third of a warrant.

Though US ECM activity is winding down early this week in anticipation of the long weekend, bankers are clearly not done yet with what has been an extraordinary funding window.

II-VI, a materials supplier for semiconductor makers, launched a US$750m equity and equity-linked raise ahead of the market open.

Bank of America, JP Morgan and Citigroup are the joint bookrunners on concurrent offerings of US$350m of common stock and US$400m of a three-year mandatory convertible bond.

They are marketing both offerings for pricing after the close tomorrow night. II-VI common shares closed last night at US$48.39. The MCB is being marketed at a dividend of 5.75% - 6.25% and a conversion premium of 17.5% - 22.5%.

Innovative Industrial Properties, a REIT that owns licensed cannabis facilities, raised US$225m overnight from an upsized stock sale. The offering came barely a month after it sold US$100m of equity in the same way.

BTIG, the sole bookrunner, placed 2.7m shares at US$83.85, within the US$83.20-$86.20 marketing range and up from 1.8m shares at launch. This was up from the US$74.16 price at which it sold 1.35m shares in late May.

Biotech Liquidia paid a high price to secure US$75m of overnight funding. Sole bookrunner Jefferies placed 9.38m shares at an US$8 fixed price, a hefty 25% discount to last night’s US$10.67 close.

Biotechs Acceleron Pharma and CRISPR Therapeutics are also seeking US$400m and US$325m tonight from one-day marketed offerings later tonight.

Nasdaq-listed Brazilian brokerage XP led last night's action by launching an US$850m first follow-on marketed for two days for pricing tomorrow night.


Biggest quarter for US IG supplyhttps://tmsnrt.rs/38eZ9Ek