The US corporate bond primaries are taking a breather on Friday after a steady week of issuance in otherwise choppy markets as participants mull the impact of the incoming Trump administration.
The ECM arena, meanwhile, has been preoccupied with follow-on and secondary market trades as well as convertible bonds.
A mix of economic data releases out on Friday includes the Empire State Manufacturing Survey, import/export prices and retail sales.
On Thursday, five IG offerings were priced totaling US$4.7bn, pushing weekly supply to US$45.85bn – well above the US$28bn in weekly IG volume forecast by syndicates – and November issuance to US$47.75bn, according to IFR data. The average new issue concession was 2.75bp and the average order book was 3.87x subscribed. The average progression from initial price thoughts to pricing was 32.08bp, according to the data.
This week was the largest for the IG primary market since the week following Labor Day, BMO said.
"Excluding Labor Day week, which is usually the heaviest week of the year, it was the strongest week of supply for the IG market since the week ending May 10," BMO said. "Compared to expectations, this week’s upside surprise was the 3rd largest of the year, trailing only the two weeks discussed above."
In the HY primary, two issues were priced totaling US$1.24bn, lifting weekly issuance to US$4.79bn and and November volume to US$5.29bn, according to the data.
The average IG bond spread edged out 2bp to 80bp on Thursday and the HY bond spread narrowed by 4bp to 260bp, according to ICE BofA data. US yields across asset classes yesterday were mixed.
"IG index spreads widened 1-2bp during yesterday’s session, bringing total widening on the short week to 3bp after touching the lowest levels in the past twenty-five years," BMO said.
With the tailwinds for credit from former President Trump’s re-election potentially fading, BMO said, the evolution of demand will be extremely interesting to monitor with spreads still hovering near historical lows.
"Altogether, this week’s metrics suggest demand may normalize somewhat, potentially sapping the potential for another leg lower in credit," BMO said. "The widening in secondary spreads is some evidence of that notion."
For the week ended November 13, Lipper US Fund Flows reported yesterday that the all short-intermediate investment-grade debt funds/ETFs net outflow was US$444.2m and the all corporate high-yield debt funds/ETFs net inflow was US$2.087bn. The all domestic equity funds/ETFs net inflow was US$38.406bn and the all non-domestic equity funds/ETFs net inflow was US$915.36m.
"Inflows notably decelerated for HG, while accelerating for HY ETFs, equities, and loans this past week ending on November 13," Bank of America Research said in a report late yesterday
BMO said, "Yesterday’s mutual fund flow report from Lipper showed an inflow into high yield funds of $2.09bn, the largest for the high yield market since the week ending October 2."
HIGH GRADE
The US investment-grade bond market is not expected to draw fresh deals on Friday, after a frenetic week for new issues.
The high-grade market recorded close to US$46bn of supply over the past three days, well above syndicate expectations for US$25bn–$35bn of supply for this week.
Market participants said it made sense for borrowers to bring forward next year's funding plans given the receptive environment for new issuance.
"Just do it before. The market's giving you the opportunity, so why don't you come to market? Especially when you have benign conditions here," Anthony Woodside, head of multi-sector fixed income and investment strategy at LGIM America, said on Thursday.
He also noted that investor demand remained strong despite compressing credit spreads because the all-in yields earned from investment-grade bonds remain attractive.
LEVERAGE/HIGH YIELD
Two issuers raised US$1.24bn in in the US high-yield bond market on Thursday, and no deals are slated to price today.
Education software company Ellucian printed an upsized US$700m five-year non-call two offering at 6.5% yesterday. The fundraising was increased by US$200m, while a concurrent first lien term loan was decreased by the same amount.
Meanwhile, Global Auto Holdings printed a US$540m long four-year non-call two offering at 11.5%. The deal was increased by US$40m.
STRUCTURED FINANCE
More asset-backed deals are slated to price next week as issuers make a push to lock in funding before month-end.
At least nine ABS issuers are in the market with deals totaling more than US$6bn. It will be a sizable increase from the light issuance this week, when only one US$295.6m prime auto deal was completed as of yesterday.
The auto sector will account for the bulk of the forthcoming supply, with Ford, Volkswagen and General Motors looking to place their latest offerings.
As for the CMBS sector, a Wells Fargo-led lender group aims to price a US$645m five-year bond today that's backed by a pool of commercial mortgages totaling US$720m. The US$300.1m Triple A rated class has price guidance of US Treasuries plus 97bp area.
The conduit issue would join the two Freddie Mac multifamily offerings this week, which raised a combined US$1.1bn for the mortgage agency.
LATAM
El Salvador returned to the market yesterday, raising US$1bn to fund its third bond buyback offer of the year, just one month after completing a debt-for-nature swap.
The 30-year notes priced at par to yield 9.65%. Bank of America was the sole bookrunner.
Moody's yesterday changed its outlook on Mexico to negative from stable, while affirming the country's Baa2 rating. The change of outlook reflects "approved reforms to the country's institutional framework, including the judiciary, that have the potential to materially alter the checks and balances and the business operating environment in the country," the ratings agency said.
Also yesterday, the central bank of Mexico cut the benchmark interest rate by 25bp to 10.25%.
Sitios Latinoamerica has hired banks for a senior unsecured dollar-denominated five-year bond offering.
The Mexico-based telecom infrastructure company has mandated Bank of America and Citigroup as global coordinators and joint bookrunners.
The virtual roadshow begins on Monday, November 18, and continues through Tuesday.
EQUITIES
Private equity firm KKR and other early backers sold US$465m of shares in OneStream via a marketed follow-on priced less than four months after the financial software firm went public.
After two days of marketing, a syndicate led by Morgan Stanley, JP Morgan and KKR itself priced the part secondary, part “synthetic” secondary offering of 15m Class A shares in OneStream at US$31.00, a 7.5% file-to-offer discount versus Tuesday’s closing price just prior to the launch of the offering of US$33.50.
The offering also priced above the US$20.00 mark at which OneStream went public on Nasdaq in mid-to-late July.
The sellers directly offloaded 9m shares; OneStream sold the balance of 6m shares but will use the proceeds to purchase partnership units from KKR.
Also late Thursday, European private equity firm EQT offloaded a US$212m slug of shares in Kodiak Gas Services through an overnight secondary stock sale and concurrent share repurchase.
Capitalizing on the gas compression service provider’s 40% stock price surge in recent months, Barclays, Goldman Sachs and JP Morgan priced the upsized sale of 5.7m secondary shares at US$34.50, within the US$34.00–$35.00 overnight marketing range and at a 3.6% discount to Thursday’s closing price of US$35.80.
Kodiak also bought back another US$15m worth of stock (434,783 shares) from EQT via a private placement.
Wisconsin’s Associated Banc-Corp raised US$300m from an upsized overnight stock sale to support organic growth and potentially rejig its securities portfolio.
A syndicate led by Bank of America and JP Morgan priced the sale of 12m Associated shares at US$25.00, inside the US$24.85-$25.15 marketing range and a 6.3% discount to Thursday’s closing price of US$26.67.
Associated expects to use the net proceeds to support continued organic growth and capital generation, which may include “potential balance sheet optimization strategies”.
Thursday’s ECM activity was rounded out by a marketed follow-on from Nasdaq-listed Chinese drug company Zai Lab (US$200m) and a seven-year convertible bond from technology firm Synaptics (US$400m), lifting this week’s US ECM volumes to more than US$4bn from 15 pricings.