IFR SNAPSHOT - US IG issuance tops US$100bn so far in January

12 min read
Americas, Emerging Markets
John J. Doran

Issuance in the IG primary for January crossed the US$100bn line on Wednesday and at least six more offerings are expected to add to that pile today.

Issuers are pulling deals forward into this month as Fed rate hikes and balance sheet reductions are expected to start later in the first quarter of this year. Borrowers are overwhelmingly opting to lock in low rates with fixed rate debt instead of tapping into investor demand for floating rate coupons.

"While IG corporate supply volumes to start the year have been the highest since at least 2010, the share of floating rate supply has been underwhelming," Bank of America Research said in a report. "That means fewer opportunities to hedge a more hawkish Fed by shifting more into floating rate bonds."

"The reason is that the share of floating rate supply is strongly correlated with the level of long-term interest rates. Lower interest rates encourage companies to lock-in the attractive borrowing costs by issuing fixed rate bonds with longer maturities," the bank said. "Hence our rate strategists' call for 10-year Treasury yields remaining below 2.0% this year corresponds to about a 10% share of floating rate supply in 2022."

Over in the high-yield arena, four issues are expected today as that market continues to print offerings.

On Tuesday seven IG offerings totaling US$9.6bn were priced pushing weekly IG volume to US38.5bn and monthly issuance jumped to US$100.9bn, according to IFR data. The average new issue concession was 12bp on Wednesday, up from 11bp on Tuesday, while the average break performance was 1.5bp tighter on Wednesday, compared to 1.8bp tighter on Tuesday and this week's new issues are trading 4bp tighter on average from pricing, BofA said.

BMO said, "IG supply featured new issue concessions of over 5bp for the third time this year and second day in a row. Further, order book coverage on yesterday’s deals dropped to 1.9x, the lowest in three months, excluding days with less than US$5bn in supply."

The average IG bond spread remained unchanged at 96bp on Wednesday for the third consecutive market session and the high-yield spread tightened by 12bp to 306bp, according to ICE BofA data.

"High quality spreads were unchanged at the index level yesterday as the primary market continues to drag on investment grade valuations," BMO said.


Six investment-grade bond deals were announced overnight for Thursday's primary market, continuing the unrelenting pace of supply that has already taken out syndicate estimates for around US$33bn of new issuance this week.

Japanese real estate company Mitsui Fudosan is marketing US$300m 10-year senior unsecured notes at initial price thoughts of Treasuries plus 115bp area. Malaysia’s CIMB Bank is also looking to sell a senior bond linked to sustainability development goals.

Indian Railway, bottler Coca-Cola Icecek and oil pipeline firm EIG Pearl Holdings would round out the rest of the supply slate.

A financing subsidiary of private equity firm Ares announced a US$400m 144a/RegS 30-year senior unsecured note at price whispers of 200bp area plus Treasuries.

There was still some trepidation among investors who wanted banks to offer more concessions or price bonds at more attractive levels to compensate for the potential surge in bond yields that hurt the buyside last week.

“People who bought deals on an unhedged basis were looking at a pretty serious loss so that causes people to pull back a bit. The issuers say if we’re going to hit an air pocket, that incentives us to move forward [on debt issuance] even more. The market needs to readjust. Bankers need to price deals so that investors get the confidence to come back," said John Sheehan, a portfolio manager at Osterweis Capital Management.


Three deals are expected to price in the high-yield primary market on Thursday.

Homebuilding product company MIWD Holdco II is expected to price a US$500m eight-year non-call three senior unsecured note, after upsizing the deal from an initial US$400m.

Natural gas exploration and development company Range Resources is looking to refinance some of its callable high coupon debt. The company, rated B1/BB-, is looking to price a US$500m eight-year non-call three senior note to refinance its 9.25% senior notes due 2026. The bonds are callable on February 1 this year and have rallied above 107 cents on the dollar in the secondary for a negligible yield around 1%, according to MarketAxess.

While refinancing activity is expected to drop this year, bankers said to expect issuers in some of the more challenged sectors to still find opportunities to refinance debt as it becomes callable.

"A lot of the low-hanging fruit has been taken care off but the guys that raised high-yield debt at any price when they had to, will look to take those bonds out," said one leveraged finance banker on Wednesday.

In addition, cable company Charter Communications (B1/BB/BB+) is expected to price a US$1bn 10-year non-call five unsecured note to finance share buybacks and repay debt.

Fertitta Entertainment's new US$1bn 4.625% 2029 secured notes and US$1.25bn 6.75% 2030 unsecured notes have held up in secondary trading after pricing on Wednesday, last changing hands at 100.125 and 100.625 respectively, according to MarketAxess. The deal, aimed at refinancing casino chain Golden Nugget's debt and paying a US$250m dividend to billionaire owner Tilman Fertitta, saw leads downsize the bonds in favor of boosting the loan portion.


The mortgage bond market was the center of attention on Wednesday with a handful of CMBS, RMBS and agency mortgage bonds priced, but the ABS market is bustling on Thursday with a handful of announcements.

Ford is pre-marketing a US$1.053bn prime auto loan ABS, FORDO 2022-A, which is expected to emerge next week. Similarly, used car retailer CarMax mandated leads for an upcoming US$1.2bn prime auto loan ABS, CARMX 2022-1, which is also expected to be announced next week.

Hewlett-Packard Financial Services meanwhile mandated leads for a US$1bn (no-grow) equipment ABS, which is expected next week.

Other ABS in pre-marketing stage so far include Foursight Capital and American Credit Acceptance (sub-prime auto ABS), Freedom Consumer Credit Fund and Lending Point (consumer loans), and SeaCube (container lease ABS).

Continuing the strong start to CMBS supply in 2022, Starwood Property Trust mandated leads for a new US$1.4bn floating rate CRE CLO on Thursday, STWD 2022-FL3, which is expected to be announced later this week.


On Wednesday, Chile's Agrosuper priced a US$500m 144A/Reg S senior unsecured 10-year note, drawing US$1.7bn of orders.

The offering priced at par with a 4.60% coupon, tightened from guidance of 4.65% (+/- 5bp) and initial price thoughts of high 4% to 5%. The bookrunning managers and global coordinators were BofA and JP Morgan (B&D) and joint bookrunning managers were Citi and Scotiabank.

From the pipeline, at least three dollar offerings are in the works.

LatAm sovereign 5-year CDS tightened 1bp in Brazil, while remaining broadly unchanged elsewhere, Lucror Analytics said.


Private equity firm TPG overcame a deteriorating new issue market to price its Nasdaq IPO at the midpoint of the range for proceeds of US$1bn.

In the new year’s biggest IPO, a syndicate led by JP Morgan, Goldman Sachs, Morgan Stanley and TPG’s own capital markets unit late Wednesday priced the sale of 33.9m shares at US$29.50, the middle of the US$28-$31 range.

The offering comprised 28.3m primary shares and the balance of 5.6m from Hong Kong-based China Life Insurance, a strategic shareholder that opted to sell about 60% of its shares. Bankers close to the deal said the offering was about 10x covered with quality demand from a concentrated group of investors. However, the tough start to the year for stocks and declines this year in key comps such as Carlyle gave TPG little chance of commanding top dollar. TPG plans to use about 40% of the primary proceeds to buy partnership interests from other existing strategic investors, though co-founders David Bonderman and Jim Coulter and active partners at the firm are not receiving any of the proceeds.

The IPO follows a golden year for the firm that saw assets under management grow by 24%-26% to US$111bn-$113bn, helped by 36%-37% realized and unrealized appreciation in its portfolio across its funds, double the gain in 2020. The firm has less assets under management than peers such as Blackstone and KKR & Co but may have more upside given it is primarily focused on private equity and is yet to get into growing corners of alternative asset management such as credit. TPG shares are expected to begin trading on Nasdaq on Thursday under the ticker “TPG”.

Spaceflight developer and ex-SPAC Virgin Galactic launched a US$425m debut convertible bond this morning, the CB market’s first offering of the year. Credit Suisse, Goldman Sachs and Morgan Stanley are spending one day marketing the five-year CB at a coupon of 2%-2.5% and a conversion premium of 27.5%-32.5% for pricing after the market close tonight. Virgin Galactic is off to a shaky start in 2022 with its shares down 7.5% to US$12.37 this year and a fraction of last February's high of $62.80. The company is using some of the proceeds to purchase a call spread to offset future dilution at a higher valuation. At the end of the third quarter, the company had US$1bn of cash.

Ares Capital, the BDC externally managed by private equity firm Ares Management, raised US$214m of new funding in an all-primary block trade. Morgan Stanley, Bank of America, UBS, RBC Capital Markets and Wells Fargo, along with eight other banks, offloaded 10m shares at US$21.40, a 3% discount to yesterday’s US$22.05 closing price. The equity is in addition to US$132m of net proceeds Ares raised from the sale of 6.5m shares in Q4 under an ATM program and US$500m last week from a two-part bond offering.

Having received FDA clearance to launch clinical trials for its vaccine against a virus that causes pneumonia and meningitis, Vaxcyte raised US$100m of overnight funding for upcoming Phase I/II trials. Bank of America, Jefferies and Evercore priced a fixed size offering of 5m shares at US$20.00, a 9% discount to last night’s US$22.00 closing price. Despite significant reverse inquiry, including at least one anchor order, the banks sold half of the offering as pre-funded warrants at US$19.99. The use of pre-funded warrants signals high levels of insider support. Vaxcyte is using the proceeds to fund a Phase I/II trial of its vaccine beginning in the current quarter with initial results expected by the end of this year.