IFR SNAPSHOT - Goose egg Thursday for IG and HY primaries

10 min read
Americas, Emerging Markets
John Doran

Given market volatility and increased worries over a possible recession, as well as more rate increases, issuers and investors beat a hasty retreat to the sidelines on Thursday.

US stocks opened in positive territory today after a mixed close yesterday while US Treasury yields continued their downward retreat, with the 10-year benchmark note yield now hovering around 3.02%.

After Fed Chair Jerome Powell testified before the US Senate Banking Committee on Wednesday, markets gyrated as they digested his comments on a possible recession as well as the Fed's continued vigilance focused on inflation and the rate rises to manage it. Powell continues his semiannual monetary policy report to Congress today before a House committee.

"High grade supply can only remain sidelined for so long, and once it does return to the market in force, it’s likely concessions will remain elevated and secondary spreads will continue to be influenced wider," BMO said in a report today. "We set a 175bp target on broad IG index spreads."

Three IG issues, however, did mange to get priced yesterday totaling US$3.05bn, lifting weekly IG volume to US$10.35bn and June IG volume to US$62.4bn, according to IFR data.

"Yesterday brought supply of just over $3bn, with reception metrics unsurprisingly weak," BMO said. "Concessions averaged 19bp on the back of books just 2.75 times deal size."

"However, similar to the optically strong deal reception observed Tuesday, we don’t take much away from yesterday’s primary market experience," BMO said. "We don’t envision that changing until Oracle announces their benchmark, which will be the true test for IG market tone."

No HY offerings were priced yesterday.

IG and HY spreads widened sharply yesterday.

"Despite the recovery in risk tone exhibited in equities during yesterday’s session, investment grade credit spreads suffered their worst day since March 7 with 5-6bp of widening," BMO said. "Yesterday’s underperformance brings the Bloomberg Barclays Corporate Index to new YTD highs, with the ICE BofA Index 1bp off 2022's peaks."

"High yield spreads also suffered losses, with the index widening 26bp," BMO said. "Yesterday marks the third time in the past 8 sessions where high yield has widened at least that much in a single day."

"High yield spreads have now widened 107bp in the past three weeks, a 24% move. For reference, IG spreads have widened ~20bp over the same period, which equates to a 15% move wider."


No high-grade bond offerings are expected to come into the market on Thursday, following the three deals that priced the previous session.

Despite the thin supply slate this week, credit spreads have widened, raising concerns that a bigger issuance pipeline in the coming days and weeks could upset supply-demand dynamics and push spreads even wider.

Wednesday saw heightened concessions across the board. Notably, utility Eversource Energy paid a steep concession of 30bp to print its new two-year note.

Midstream energy firm Targa Resources also had to hand over 20bp concessions for each portion of its US$1.25bn two-part senior unsecured offering, which will go towards financing its US$3.55bn purchase of Lucid Energy from private equity firm Riverstone and Goldman Sachs Asset Management. Leads managed to collect US$2.8bn of demand for the deal.

Korean oil refiner GS Caltex had the biggest order book for its US$300m 3.5-year senior unsecured bond, coming in more than 6x oversubscribed. But choppy market conditions still forced the borrower to pay a 15bp concession.


Another quiet day with no new high-yield deals expected to price on Thursday.

With high-yield bond spreads widening yesterday by 27bp to 532bp, spreads are now effectively on top of the peak they experienced in late 2018, said BMO Capital Markets analysts in a Thursday note.

"Excluding the peak of the pandemic, this is the widest spread in the high yield index since early 2016," said BMO.


The asset-backed market is expected to price at least one deal on Thursday, marking another light supply week as the end of first half draws near.

Nissan is set to price later today its first auto lease securitization of 2022, the US$939m NALT 2022-A. The US$362m Triple A A-3 note, which carries a weighted-average life of 1.70 years, is last talked at Treasuries plus 88bp-90bp.

The transaction is drawing decent demand, but it is taking a bit more time to build the book, signaling a tough market climate even for a benchmark issuer like Nissan, a senior portfolio manager said.

Another deal that is set to price this week is a US$500.55m equipment offering, MLR 2022-1, from Marlin Capital Solutions. The biggest tranche, the US$218m A-1 money market class, is guided at 100bp-110bp over Treasuries.

On Wednesday, Ford and Lendmark Financial raised a combined a U$1.45bn with their latest ABS offerings.

Amid rising interest rates and elevated market volatility, some investors are focusing on owning senior parts of securitized deals and bonds backed by real estate assets.

A resilient housing market due to tight supply would offset a modest drop in prepayment speed and support the performance of mortgage bonds, Nuveen's chief investment officer of global fixed income Anders Persson said in a media roundtable on Wednesday.


Mexico's troubled payroll lender Credito Real said last night that it was aware that a group of bondholders had presented an involuntary Chapter 11 petition in a US Bankruptcy Court of the Southern District of New York.

The company said that this group holds less than US$10m of its notes and that their petition was unfounded.

"It was presented as a litigation tactic by minority holders that seek to obtain advantage in the negotiations with the company," the company said. "The company will fight the involuntary petition in the US."

The Central Bank of Honduras said on Wednesday that it approved a loan of US$1bn to the country's government aimed at addressing a severe fiscal imbalance.

Yesterday, LatAm sovereign five-year CDS widened 12bp for Colombia, 6bp for Brazil, and 1bp each in Mexico, Chile and Peru, according to Lucror Analytics.


With just a week left in the second quarter, ECM syndicate desks have little to show for their efforts, having priced only five traditional IPOs for combined proceeds of US$1.6bn during the period.

This week’s US$180m NYSE American/TSX IPO of billionaire Robert Friedland’s junior copper play Ivanhoe Electric would have represented the sixth, as well as the first new issue in more than a month, but the deal is not expected to price post-close Thursday as planned.

A syndicate led by BMO Capital Markets, Jefferies, Raymond James, RBC Capital Markets and Scotiabank is marketing 14.4m Ivanhoe shares at US$11.75-$12.50, but bankers early Thursday opted to extend marketing into next week with a goal of pricing post-close Monday.

On a more positive note, the convertible bond market reopened this week after a two-week hiatus.

Ormat Technologies late Wednesday raised an upsized US$375m from the sale of a five-year convertible bond, a deal that highlights the geothermal energy firm’s ESG attributes amid the current push for greater sources of renewable power.

Joint bookrunners Barclays, JP Morgan and Citigroup priced Ormat’s new CB at a coupon of 2.5% and a conversion premium of 30% versus the marketed terms of 2.25%-2.75%, up 30%-35%. Ormat shares fell 7.4% to US$69.44 during Wednesday’s one-day marketing effort, but demand was still strong enough to upsize the deal from the original US$350m target.

By marketing the security as “Green Convertible Senior Notes”, the banks hoped to tap into a broader pool of ESG-minded investors, along with the usual pool of outright CB buyers. Ormat management also presented at JP Morgan’s Energy, Power and Renewables Conference on Wednesday afternoon, helping to stir up some buzz among energy-focused investors.

In addition to repurchasing US$18m of its own shares and repaying US$221.8m of debt, Ormat is using some of the proceeds to fund a capped call transaction to offset dilution to prices above US$107.63, 55% Wednesday’s close.

Nasdaq-listed Canadian biotech Xenon Pharmaceuticals raised US$250m from an overnight stock sale to help fund a Phase III trial of its new epilepsy drug. Jefferies, JP Morgan, SVB Securities and Stifel priced 8.2m shares/pre-funded warrants at US$30.50, the middle of the US$30-$31 range and a 12.1% discount to Wednesday’s US$34.70 closing price

The offering was covered at launch after an earlier confidential marketing effort. Xenon's share price surged 13% in the two sessions ahead of the offering after the FDA this week greenlighted the biotech’s Phase III trial plans.