The US investment-grade corporate primary, after pausing yesterday, is back in action with two issues on Thursday following the Federal Reserve's rate cut.
The high-yield arena is also active today with at least two offerings expected to price.
After keeping rates on hold for 14 months, Deutsche Bank Research observed today, the Fed finally reversed course and delivered a 50bp cut yesterday, lowering the fed funds target to the 4.75-5.00% range.
"However, accompanying the larger cut was a signal of a fundamentally strong economy with no suggestion that continued 50bp cuts were likely," Deutsche Bank said. "Growth projections were little changed and the dot plot showed the median FOMC member expecting the fed funds range at 4.25-4.50% at year-end."
Meanwhile, after selling off by the end of the session yesterday, US stocks rebounded this morning, opening sharply higher.
"Very constructive risk tone this morning, evidenced by a 1.5bp narrowing in IG CDX spreads and 1.5% rally in equities overnight, should do nothing to stand in the way of corporate supply that usually comes on the day after a Fed meeting," BMO said in a report today. "Excluding Decembers, the most recent Thursday following an FOMC meeting that saw no supply was June 2022."
BMO said that today will need to see US$8bn-$9bn of IG issuance to reach expectations for US$22bn-$23bn coming into the week.
"While the odds are naturally tipped against that outcome given average post-Fed issuance of $5.5bn over the past three years, it can’t be ruled out," BMO said.
Economic data releases today include the US weekly initial jobless claims, Philadelphia Fed Manufacturing, the current account, existing home sales for August, and the Conference Board’s leading index for August.
There were no IG issues priced in the IG primary on Wednesday. The HY arena was also quiet yesterday.
The average IG bond spread narrowed by 2bp to 95bp on Wednesday and the HY bond spread tightened by 4bp to 321, according to ICE BofA data.
"With yesterday’s narrowing, broad IG index spreads are now trading on top of the YTD average of 92bp on the Bloomberg corporate index and are at their lowest levels since the end of July," BMO said.
Bank of America Research said the deeper rate cut was good for corporate IG technicals and fundamentals.
"Firstly, the demand for duration has been very strong in anticipation of the upcoming Fed cutting cycle. The Fed has just confirmed that a relatively rapid cutting cycle is coming," BofA said. "Secondly, a larger cut should ameliorate US growth concerns."
"Finally, the bear-steepening of the Treasury yield curve supports demand due to higher yields and lower FX hedging costs for foreign investors," BofA said.
HIGH GRADE
The US investment-grade market is expected to draw at least two deals from the financial sector on Thursday.
Nordea Bank is selling an Additional Tier 1 capital note that can be first redeemed in 2032. Leads Barclays, Bank of America, HSBC, Morgan Stanley, Nordea Bank and UBS initially opened books at 7.125% area, and later revised to 6.875% area after demand swelled to more than US$6.75bn.
Elsewhere, Goldman Sachs is selling perpetual preferred stock in a non-call 10 structure to refinance its legacy preferred shares. The US investment bank set IPTs for the self-led transaction at 6.625% area.
LEVERAGE/HIGH YIELD
Junk-rated borrowers are once again emerging from the pipeline now that the Federal Reserve has moved to cut rates by 50bp.
Murphy Oil has set initial price thoughts of 6.5%-6.75% on a US$600m eight-year non-call three offering ahead of pricing today.
Proceeds from the senior unsecured note are expected to be used to fund a tender for its 5.875% 2027s, 6.375% 2028s and 7.05% 2029s.
Alpha Generation, meanwhile, is also expected to price an eight-year non-call three offering today after upsizing the deal to US$1bn from US$800m and releasing price talk at 7% area.
The newly formed independent power producer is using proceeds to repay debt at subsidiaries and to reset energy hedges.
Elsewhere, natural gas company Aethon United has announced a US$1bn five-year non-call two issue to redeem its 8.25% 2026s and repay some borrowings from revolver. Lead banks have set IPTs at 7.75%-8% ahead of expected pricing on Friday.
STRUCTURED FINANCE
Several asset-backed issuers are marketing new offerings today as dealmakers digest yesterday's rate decrease from the Fed.
General Motors is out with a US$1.26bn SEC-registered auto lease securitization that is slated to price next week.
Other new deals include a prime auto loan securitization from Ally, a consumer loan offering from Social Finance and a triple net lease issue from Enova, according to Securities and Exchange Commission filings this week.
The pace of ABS issuance, however, is expected to slow a bit from the current brisk level, a senior syndicate banker said.
Weekly asset-backed supply has topped US$11bn after two issuers raised over US$1bn yesterday, IFR data show.
LATAM
Moody's yesterday upgraded Costa Rica to Ba3 from B1, maintaining a positive outlook. The upgrade reflects a strengthened fiscal profile resulting from a "stronger debt management and lower borrowing costs," as well as "a steady reduction in government debt ratios driven by stronger-than-expected economic growth," the ratings agency said.
YPF attracted only US$40m in tenders by yesterday's early deadline of the company's offer to buy back up to US$500m of its 8.5% senior notes due July 2025. The offer is scheduled to expire on October 3.
The central bank of Brazil yesterday increased the Selic rate by 25bp to 10.75%. "[R]isks to inflation scenarios are tilted to the upside," the central bank said in its statement.
LatAm sovereign five-year CDS ​tightened 3bp-4bp yesterday for Peru and Colombia, according to Lucror Analytics.
EQUITIES
US ECM activity burst to life late Wednesday following the Federal Reserve’s 50bp rate cut.
American Healthcare REIT led the way by raising US$410m from an upsized overnight stock sale to fund the purchase of a 25% minority interest in a senior housing joint venture.
Bank of America, Morgan Stanley and KeyBanc Capital Markets priced the sale of 17.4m shares of the senior housing REIT at US$23.55, a 4% discount to Wednesday’s closing price of US$24.53.
Though the offering was not wall-crossed, the syndicate was still able to rustle up enough demand to increase the size of the offering from 14.5m shares at launch.
The REIT was already a public filer/well-known seasoned issuer when it priced its IPO in February, allowing it to skirt the usual requirement for recent new issues to undertake 48 hours of marketing when they return to sell stock.
Elsewhere, Citigroup priced an upsized US$389m block sell-down of shares in energy infrastructure vehicle Hess Midstream by BlackRock-owned Global Infrastructure Partners.
Citi offloaded its purchase of 11m shares at US$35.40, a 4.2% discount to Wednesday’s closing price of US$36.95. The offering was upsized from 10m shares at launch.
Also late Wednesday and joining two other IPOs on the road for pricing next week, BioAge Labs launched an up to US$142m Nasdaq IPO that gives investors another way to play the red hot GLP-1 weight loss trend.
Goldman Sachs, Morgan Stanley, Jefferies and Citigroup are marketing the sale of 7.5m shares in the mid-stage biotech at US$17–$19 for pricing on Wednesday, September 25.
Sofinnova Investments is investing another US$15m through a private placement alongside the IPO. The VC also backed a US$170m Series D in February that valued BioAge at roughly US$15.25 a share.
The biotech is using the money to fund a Phase II trial on an oral drug that may improve the safety and effectiveness of existing multi-billion selling GLP-1 weight loss drugs when taken in combination.