The US investment-grade and high-yield primaries are quiet today amid the US presidential elections.
The ECM arena is also quiet after getting some business done before the close on Monday.
One IG offering was priced in the primary on Monday totaling US$700m to kick off issuance for the month of November, according to IFR data. The new issue concession yesterday was 5bp and the order book was 2.14x covered, the data show. The progression from initial price thoughts to pricing was 20bp tighter.
"Yesterday’s deal ensures that the week will feature at least some new issue activity, but that is likely to be it for the week," BMO said in a report today. "With today and Thursday certain to be empty sessions, tomorrow represents the only chance for additional supply. While it can’t be ruled out, the odds are likely against a deal tomorrow."
No high-yield issuers were in the corporate primary on Monday.
The average IG bond spread was unchanged at 86bp on Monday for the third consecutive market session and the HY bond spread was 4bp wider at 287bp, according to ICE BofA data.
"High grade spreads were unchanged yesterday on unsurprisingly light volume ahead of today’s US Presidential election with another light session on tap today," BMO said.
Separately, Bank of America Research said in a report late Monday that North American M&A announcements increased to US$183bn in October from US$164bn in September.
"There was $14.7bn of M&A-related IG issuance in October, down from $23.8bn in September, $19.6bn in August and up from $7.5bn in July," BofA said. "The pipeline of announced deals with potential IG funding implications declined to $210bn in October, down from $263bn in September."
HIGH GRADE
The US investment-grade bond market is not expected to draw fresh offerings on Tuesday, after a single deal priced on Monday.
Canadian telecom company Videotron was the sole borrower to test the high-grade market on Monday. The issuer sold its first high-grade offering in the US dollar market, printing a US$700m 10-year senior unsecured note at a spread of US Treasuries plus 140bp. Leads tightened the deal by 20bp from the mid-point of IPTs.
LEVERAGE/HIGH YIELD
Activity in the primary market for US junk bonds has ground to a halt on Tuesday as markets await the outcome of today's presidential election and the Federal Reserve's decision on rates Thursday.
In the secondary market, the 6.25% 2040 issued by steel maker Cleveland-Cliffs has seen some substantial price swings this morning.
It started the day trading a point lower at 89.529, only to jump to a dollar price of 93.125 later in the morning, according to MarketAxess data.
This comes after the company reported third-quarter revenues yesterday of US$4.6bn, down from US$5.1bn in the prior quarter.
The company was last in the bond market in October, when it raised US$1.8bn to fund its acquisition of Canadian steel maker Stelco.
CEO Lourenco Goncalves said in a release yesterday that weaker steel demand has led to the temporary idling of one of its blast furnaces, but that a rebound in demand next year should allow the company to cut acquisition debt quickly with free cash flows.
STRUCTURED FINANCE
Like the rest of the credit market, the securitization arena is expected to be quiet today as market participants await the outcome of the US election.
Yesterday dealmakers managed to complete a half dozen mortgage securitizations, raising over US$2bn, according to IFR data.
If market conditions are calm after the election, deal flow is expected to pick up, with a healthy pipeline of issues ready to come to market, bankers and investors said.
LATAM
The primary bond market in Latin America remains quiet today.
Moody's downgraded Brazil's Refinaria de Mataripe (Acelen) yesterday to B1 from Ba3, keeping the outlook negative. Moody's also downgraded the rating on MC Brazil Downstream Trading's senior secured global notes, which are fully guaranteed by Acelen, to B1 from Ba3. The outlook for the issuers remains negative.
The ratings action reflects "weaker than anticipated operating performance of the refinery" since the assets were acquired from Petrobras. The refinery was purchased by Mubadala Capital, a global investment firm based in Abu Dhabi, in November 2021.
EQUITIES
Syndicate desks snuck in a few ECM deals on Monday but avoided launching new deals post-close as the attention of the world turns to who will become the next president of the United States.
Xcel Energy hit Monday’s pre-open to raise US$1.2bn from a forward sale to cover next year’s equity needs and help upgrade its power grid to meet surging demand from data centers and the increased electrification of the economy.
Ahead of the opening bell and following a weekend wall-cross of about 10 long-only accounts, Barclays and Bank of America priced the sale of 18.3m shares in the Minneapolis-based electric utility at US$65.50, inside the US$65.36-$66.69 range and at a 1.8% discount to Friday’s closing price (also US$66.69).
Xcel shares closed Monday at US$65.82 or modestly above the offering price.
Centrus Energy paid a steep price to raise US$350m from a new six-year CB to help de-risk its nuclear energy projects.
After a day of marketing, Bank of America and JP Morgan priced the new CB late Monday at a 2.25% coupon and 25% conversion premium after marketing the offering at 2.25%-2.75% and 22.5%-27.5%.
Centrus stock collapsed 28.8% to US$78 in Monday’s session. Just last week, the shares hit an all-time high of US$118.36.
In October, the US Department of Energy selected Centrus as one of four companies contracted to receive US$2.7bn for developing high-assay low-enriched uranium for next-generation nuclear power plants, causing its shares to jump 26.3% (from US$61.30) on a single day last month.
Capital Southwest found enough support to price an upsized US$200m five-year CB.
Also after taking out a day of marketing, Oppenheimer priced the new CB at a 5.125% coupon and 12% premium, increased from US$175m of the security marketed at a 4.625%-5.25% coupon and (an unusually low) 2.5%-7.5% conversion premium.
Shares of the BDC closed Monday’s session at US$22.33, putting conversion at US$25.
Capital Southwest shares yield 10.4% based on its 58-cent quarterly dividend. The CB therefore offers a lower cost of capital than selling stock.
The BDC is using the proceeds to lower its borrowing costs by fully redeeming US$140m of debt at 4.5% interest, while the remaining proceeds will go to pay down a portion of the US$200m drawn on a revolver at 7.8% interest.