IFR SNAPSHOT - Post holiday, US IG primary sees tsunami of offerings

10 min read
Americas, Emerging Markets
John Doran

At least 14 investment-grade offerings are expected to price in the US corporate primary on Tuesday as issuers line up their deals to take advantage of favorable market conditions following last week's historic US election.

In the high-yield primary, at least three issues are expected to price today and a fourth issue was announced for pricing on Thursday. The ECM arena is keeping busy with block trades and convertible offerings.

The corporate bond market is bouncing out of the starting gate after US bond markets were closed for Veterans Day on Monday. The US stock market was open, however, and it again pushed into new record territory.

"The post-election rally edged higher yesterday, as the S&P 500 (+0.10%) closed above the 6,000 mark for the first time, posting a fourth consecutive record high following the election and its 51st of 2024 so far," Deutsche Bank Research said in a report today. "In fact, the index is currently experiencing its strongest YTD performance since 1995, having risen by +25.82% since the start of the year, and it’s the first time since 1997-98 that it’s on course to post back-to-back annual gains above +20% and only the third time in 100 years."

US Treasury yields, however, are edging higher, in part due to concerns about inflation and the number of rate cuts now expected from the Federal Reserve. Deutsche Bank said inflation expectations have risen quite a bit over the last couple of months.

Two economic data releases, the NFIB Small Business Economic Trends and the FRB New York's Survey of Consumers, and a number of Fed speakers dominate the day. The big data news this week will be the CPI and PPI reports on Wednesday and Thursday. US yields across asset classes were unchanged on Monday.

For the week ahead, BMO said in a report today that corporate bond syndicate desks are anticipating approximately US$28bn of IG issuance, which is a relatively low estimate for the third week of November.

"Since 2016, an average of $37.4bn has come during what is historically the most active week of the month with only 2022 ($24.8bn) falling short of this week’s estimate," BMO said.

"It may be true that issuers front-loaded borrowing programs this year ahead of the election, which would work to limit supply," BMO said. "But it would not be surprising in the least to see borrowers start looking to accelerate borrowing plans for 2025 given the ideal market conditions in the wake of the red sweep."

BMO also noted that while currently higher yields may be a disincentive for issuance, "elevated rates are likely expected to remain prevalent for the foreseeable future, if not increase further."

"Thus, rates may not be a compelling disincentive for borrowers to consider pre-funding 2025 in the current environment," BMO said.

Also, BMO said extremely narrow credit spreads are sure to represent a compelling reason to consider doing so, as well as exceptionally strong metrics of demand in the IG market.

The average IG bond spread remained unchanged at 77bp on Monday and the HY bond spread was also unchanged at 263bp, according to ICE BofA data. Both are post great financial crisis record credit spread tights.

"High grade spreads narrowed 1bp on Friday to bring total narrowing on the week to 9bp," BMO said. "That’s the largest weekly narrowing for the IG index since March 2023 when spreads also narrowed 9bp in a single week in the aftermath of regional banking stress. To find a weekly narrowing larger than 9bp, one must go back to November 2022."

HIGH GRADE

Investment-grade bond issuers have come alive again with at least 14 deals expected on Tuesday after the markets for credit in the US were closed yesterday for Veterans Day.

Banks are leading the way today. From Europe, HSBC, BNP Paribas and Societe Generale are each marketing US dollar trades, as is Australia’s Westpac. Meanwhile, Goldman Sachs announced an offering of 21-year non-call 20 senior unsecured fixed-to-floating rate notes this morning and Huntington Bancshares is working on a two-part trade. Citigroup and Citibank are out with separate offerings that will count as two deals.

Elsewhere, the financial services arm of Caterpillar is out with a three-part trade, and the North American finance division of Mercedes-Benz is preparing a four-part offering. Asset manager Blue Owl Capital is working on a tap of its 5.95% notes due 2029.

At the same time, ground lessor Safehold, elevator maker Otis Worldwide and insurer Equitable Life Global Funding are preparing new issues.

LEVERAGE/HIGH YIELD

Junk-rated borrowers are starting to emerge from the pipeline following Donald Trump’s electoral sweep last week.

REIT XHR, E&P company Magnolia Oil & Gas and home builder LGI Homes are expected to raise a combined US$1.165bn today to refinance upcoming bond maturities and other debt.

Meanwhile, education software provider Ellucian is preparing to raise US$500m on Thursday through a five-year non-call two issue, in part to fund a dividend to its shareholders.

The borrower, which Blackstone and Vista Equity Partners bought in 2021, is also using proceeds from the bond and a loan to repay debt.

UK-based Global Auto Holdings is also returning to the US dollar market with a US$500m long four-year non-call two offering to help fund its proposed acquisition of KW Bruun. Pricing is expected next week.

STRUCTURED FINANCE

The US asset-backed primary is expected to resume today following the three-day holiday weekend.

At the moment, the pipeline for ABS supply is thin, but it is expected to reload with a healthy dose of deal announcements, market participants said.

However, the rise in US Treasury yields since last week may temper the pace of offerings coming to market, they said.

While the ABS market was quiet last week, with no deals sold, the CMBS and RMBS sectors were relatively lively with over US$3.5bn and US$1.5bn priced, respectively.

LATAM

On Friday, Argentina's MSU Energy announced an offer to exchange up to US$400m of its 6.875% senior notes due 2025 for new 9.750% senior secured notes due 2030, which is contingent upon the successful completion of a concurrent cash offering of new notes.

Citigroup, Itau, JP Morgan and Santander are the dealer managers.

Banorte will wrap up its roadshow for a US dollar perpetual AT1 bond today with meetings in New York. Barclays, Goldman Sachs and Morgan Stanley are the global coordinators for this Basel III-compliant security.

On Friday, Generacion Mediterranea and Central Termica Roca announced the expiration of an exchange of existing notes maturing in 2026 and 2027 for new 11% senior secured notes due 2031.

El Salvador today launched an offer to buy back for cash its notes maturing in 2027, 2029, 2030, 2032 and 2034. Bank of America is the dealer manager on the transaction.

EQUITIES

Clearwater Analytics’ backers got in early on an expected wave of sponsor monetizations in the pre-Thanksgiving Day window by selling US$735m of their holdings via a block trade late Monday.

JP Morgan, the winner in a competitive bidding process, reoffered its purchase of 25m shares at US$29.40, at the bottom of the US$29.40-$30.00 marketing range and a 5.2% discount to the closing price of US$31.02.

The sell-down came after the investment accounting software firm’s shares soared 25% to US$35.71 (an all-time high) after it reported a record quarter last week.

The move gave backers Welsh Carson Anderson & Stowe, Warburg Pincus and Permira Advisors an opportunity to take profits.

Clearwater drew the shares from an effective shelf registration statement already on file, allowing it to proceed with last night’s block trade despite the SEC being closed for Monday’s Veterans Day holiday.

In similar fashion, Kura Sushi USA raised US$59m of primary capital from an upsized overnight stock sale originally sized at US$50m.

William Blair, Barclays and TD Cowen priced 0.7m shares of the Japanese sushi restaurant operator at US$85.00, a 7.9% discount to Monday’s closing price of US$92.33.

Breakfast chain First Watch Restaurant Group served up a US$159.6m block trade early Tuesday.

Sole bookrunner Goldman Sachs reoffered its purchase of 8m shares from seller Advent International at US$19.95, the bottom of US$19.95-$20.65 marketing range and a 6.9% discount to Monday’s closing price of US$21.42.

Upstart is looking to capitalize on massive stock gains since Election Day through the sale of a new US$425m convertible bond, its second CB in three months.

Goldman Sachs and Barclays launched the new CB early Tuesday at a coupon of 0.875%-1.375% and conversion premium of 27.5%-32.5% for pricing after the close.

Shares of the AI-powered lending platform have soared to US$77.48 on the back of strong quarterly earnings and post-election euphoria.