Boeing launched a US$19bn two-part equity offering on Monday to shore up its credit rating and balance sheet.
The Boeing financing is considerably larger than the US$10bn-$15bn analysts were expecting.
Meanwhile, the US investment-grade primary is stirring this morning, with at least four offerings slated for sale. The US high-yield primary is quiet today.
Recapping last week, markets finally slipped back after a relentless run higher over the preceding weeks, with the S&P 500 ending a series of 6 consecutive weekly gains, Deutsche Bank Research said in a report today.
Today, markets start the week on a firmer footing as a calm settles while geopolitical and economic events unfold. US stocks opened sharply higher, while US Treasury yields ebbed.
"Risk tone is firm this morning after Israel’s retaliatory strikes on Iran over the weekend were not as severe as feared, reducing the odds of further escalation in Middle East hostilities," BMO said in a report today. "That may help the week get off to a fast start in the primary market, where syndicate desks are expecting approximately $18bn in IG supply this week, which is on the lighter side of the historical experience."
Excluding 2020, the final week of October has seen average IG supply of US$22.3bn, BMO said.
This week features meaningful economic data headlined by Friday’s job report, alongside the US Treasury’s quarterly refunding announcement on Wednesday, BMO said.
Deutsche Bank Research noted this morning that it will pay attention to the September personal income release on Thursday, which includes the Fed’s preferred core PCE inflation measure.
In addition, issuer blackouts will continue as corporate earnings will be in focus once again amid the heaviest release weeks of the season. The corporate earnings blackouts will temper corporate bond issuance momentum.
"Thus far, almost a third of the S&P 500 has reported earnings in terms of market cap, and the results have been solid, if unspectacular," BMO said. "Just under 75% of companies to report thus far have exceeded earnings expectations, which is the lowest proportion at this point in the release cycle since the first quarter of 2023."
Today just one data release is expected, the Dallas Fed's Texas Manufacturing Outlook Survey. There are no Fed speakers scheduled this week due to the beginning of the pre-FOMC meeting blackout period.
In the IG primary last week, five issues were priced as 13 tranches totaling US$12.1bn, lifting October volume to 39 issues sold as 67 tranches totaling US$67.55bn, according to IFR data. The average new issue concession last week was 1.5bp and the average order book was 3.06x subscribed. The average progress from initial price thoughts to pricing was 28.65bp tighter. Weekly IG volume fell short of syndicate expectations of US$21.5bn.
In the HY primary, 11 tranches were priced totaling US$6.895bn, pushing October volume to 28 tranches totaling US$19.63bn.
The average IG bond spread narrowed by 1bp to 85bp on Friday and the HY bond spread tightened by 4bp to 289bp, according to ICE BofA data.
"High grade spreads narrowed 1bp on Friday and closed the week as a whole approximately 2bp wider as IG index spreads continue to plumb historical lows," BMO said.
Bank of America Research said IG spreads are tight and investors find them overvalued by close to record margins.
"While we agree that the spreads are rich right now, some of the tightening is justified," BofA said. "First, the US IG index is currently shorter and higher quality. Second, the IG cash market is more liquid."
HIGH GRADE
At least four US high-grade bond offerings are expected to price on Monday.
Electric connectors maker Amphenol is in the market for a three-part bond transaction to partially finance its US$2.1bn acquisition of CommScope's mobile network business. The offering comprises 10 and 30-year senior unsecured notes, along with a tap of its 2027s.
Logistics company Ryder System is issuing a US$300m five-year senior unsecured bond.
There are also two Yankee bank offerings. Norway-based DNB Bank is selling six-year non-call five senior preferred paper today, split into floating and fixed-to-floating tranches.
Canadian Imperial Bank of Commerce is raising Additional Tier 1 capital via an offering of limited recourse capital notes. The 60.25-year non-call 5.25 junior subordinated note is starting marketing at 7.125% area.
LEVERAGE/HIGH YIELD
The primary market for US junk bonds is off to a slow start this week, with no deals announced this morning.
This comes after borrowers piled into the market last week, when the asset class saw close to US$7bn in new supply.
Meanwhile, recently issued bonds have been putting in a mixed performance in the secondary markets.
The 8.625% 2031 issued by baked goods company Rise Baking to fund its acquisition by private equity sponsors traded up a touch at 100.625 on Friday after pricing at par on Thursday, according to MarketAxess data.
However, the 6.875% 2031 issued by Raven Acquisition, which does business as R1 RCM, was weaker on Friday, when it changed hands at 99.75 after pricing the day before at par.
The senior secured deal was part of a bigger financing package to fund the acquisition of the healthcare technology company by TowerBrook Capital and Clayton Dubilier & Rice.
STRUCTURED FINANCE
The asset-backed primary will pick up this week after pricing activity paused the week before largely due to the annual ABS East conference.
At least US$4bn of ABS supply is lined up for sale, led by a half dozen deals from the auto sector. Other consumer assets are also active, with upcoming issues backed by unsecured loans, credit cards and student debt.
In the esoteric space, there are a US$850m music royalty offering from Blackstone's Hipgnosis and a US$262m fiber network securitization from GI Partners' Blue Stream Communications.
The CMBS sector is also going to ramp up with several new deals. Asset manager Brookfield is marketing a US$598.5m bond to refinance a mall in Colorado, while property developer Jeffrey Soffer is seeking to raise US$475m with a bond backed by a resort he owns in Florida.
Elsewhere, there are several non-QM deals slated for sale this week, which include the latest issues from A&D Mortgage, Ellington and Pimco.
LATAM
Colombia is expected to price a two-part SEC-registered offering today comprising senior unsecured 12-year and 30-year notes. Initial price thoughts are in the 8.15% and 8.8% areas, respectively.
The sovereign issuer has concurrently announced an offer to buy back its US$1.5bn outstanding 4.5% global bonds due 2026 and US$1.89bn 3.875% global bonds due 2027.
Citicorp, Itau and SMBC are the book runners on the bond offering and the dealer managers of the tender offer.
Barometric announced today a US$1.11bn two-part offering of five-year non-call two notes and seven-year non-call three senior secured notes, with Barclays as lead left.
On Friday, Mexican remittances company Nevada Elektra raised US$350m from a seven-year secured note, pricing it at par to yield 12.5%. BCP Securities and Jefferies were the global coordinators on the transaction.
EQUITIES
Boeing is seeking to raise a larger-than-expected US$19bn of fresh equity as the embattled aircraft maker tries to pare its heavy debt debt, bolster liquidity and protect its investment-grade credit rating.
As expected, the offering was broken into two parts, including US$14bn of common stock and US$5bn of a three-year mandatory convertible, though the financing is much larger than the US$10bn-$15bn sum analysts were expecting.
The syndicate, led by Goldman Sachs, Bank of America, Citigroup and JP Morgan, is marketing the concurrent offerings through Monday's session for pricing after the market close.
The offering ranks as one of the biggest stock sales of all time, with the base common equity raise weighing in at slightly less than SoftBank's US$14.8bn sell-down of its stake in T-Mobile US in 2020.
Both Boeing offerings are oversubscribed at launch following a confidential marketing effort that took place over the weekend.
The banks are authorized to raise up to US$25bn under a shelf registration statement dated October 15. Notably, Boeing pushed ahead with the offering even while it remains locked in a dispute with 33,000 striking machinists that is said to be costing it US$50m-$100m a day.
Boeing shares closed Friday at US$155.01, down 40% this year, and fell 1.7% to US$152.39 early in Monday's session.
The common offering of 90m shares amounts to 12.7% of the outstanding shares (Boeing currently has a current market cap of US$95bn).
The same banks are marketing the mandatory CB at a dividend of 6%-6.5% and a 17.5%-22.5% conversion premium.
Also early Monday, private equity firm Apollo Global Management pared its stake in home security provider ADT via a US$408.8m block trade.
They expect to place in the US$7.30-$7.50 range and at a 7.4% discount to Friday’s closing price of US$7.88. ADT surged 11% last week after reporting better-than-expected third-quarter earnings, though the stock remains well below its US$14.00 IPO price struck in 2018.
Apollo still owns 44% of ADT and plans to sell more in 60 days.