Price progression and supply data added
Supply continues to flood the US high-grade bond primary market as 14 borrowers are expected to price US$13.95bn Tuesday following the 11 issuers who priced more than US$25bn Monday.
Borrowers are taking advantage of the market while it is open, pricing US$39.65bn so far this week on the way to an estimated US$75bn by weekend, according to syndicate bankers.
Monthly issuance is over US$139bn on the way to an estimated US$250bn in May, according to IFR data.
None of the issuers on Tuesday individually raised as much as The Walt Disney Co did on Monday, which became the fourth largest deal of the year at US$11bn.
All of the issuers leading the way on Tuesday, including GM Financial, ViacomCBS, Caterpillar Financial Services and Bank of New York Mellon, were back in the market double dipping for their second go at raising debt since the Covid-19 pandemic outbreak in the US.
Disney was forced to pay some 18bp-20bp of new issue concession on its second go around in the market Monday and today's issuers may have to pay up as well as investors demand a premium for added concentration risk in their portfolios, one banker said.
But with US rates low, borrowers were happy to pay the price to lock in low coupons ahead of the uncertainty ahead.
"We see rising risks for the first time since mid-March as western economies exit lockdown," BNP Paribas wrote in a recent report.
"This creates the first possibility that the virus-risks may resurface with the potential for a growth scare. We see the risk-reward in credit skewed negatively in the coming weeks into June."
PRICE PROGRESSION
GM Financial, rated Baa3/BBB/BBB-, is offering a three-year note in the area of 535bp over Treasuries less than a week after the parent car manufacturer priced a US$4bn three-part bond.
The new three-year note started price talk just 10bp wide of where the parent priced its 5.4% 2023 last week. Through price progression spreads tightened to 500bp over Treasuries, which is roughly inline with where last week's three-year was trading in the secondary, according to MarketAxess data.
Management guided during earnings that it expects to raise some US$7bn-US$8bn through the financial arm over the course of the year to refinance upcoming bond maturities.
The auto lending arm has US$3.784bn of bond debt maturing this year with another US$9.249bn slug due next year, according to Refinitiv data.
ViacomCBS, rated Baa2/BBB/BBB, is also back in the market with a US$2bn bond split evenly between 12 and 30-year tranches.
This new offering follows a US$2.5bn two-part offering in March of five and 10-year maturities, which served as its inaugural bond offering since the two companies combined (again) in 2019.
The notes are being offered simultaneously with a tender offer for up to US$1bn from a series of 11 bonds maturing 2021-2023.
CreditSights estimated that at IPTs - T+415bp area on the 12-year and T+420bp area on the 30-year - the notes were offering some 45bp of pickup over ViacomCBS' existing curve and a 50bp premium over similarly rated Discovery.
However, much of that premium was erased through price progression as spreads tightened 30bp-35bp through price progression to land at 380bp over on the 12-year and 390bp over on the 30-year.
"While we think that ViacomCBS has slightly higher fallen angel risk relative to Discovery, despite having a one notch higher credit rating, that is not our base-case for either company," the research firm noted in the report.
Other issuers include Oklahoma-based energy company Williams Companies; India's public power company REC; Kuwait-based Equate Petrochemical; parent company of rating agency Moody's; semiconductor company Xilinx; drug wholesaler AmerisourceBergen; Ohio-based Appalachian Power; nuclear electric power company Exelon; mortgage insurer Radian Group; insurance company Aon; and LatAm issuer Grupo Energia de Bogota.