The US investment-grade corporate primary will see just one issue on Thursday in the wake of two economic data reports that gave markets a jolt.
The high-yield primary also expects at least one offering to price today. The ECM arena remained active on Wednesday with ServiceTitan pricing its Nasdaq IPO, while other companies executed a mix of convertible bonds and secondary trades.
Two important economic data releases were out this morning, with PPI and weekly jobless claims both surprising the markets.
The PPI report came in higher than expected. Producer prices rose 0.4% on a monthly basis in November, Reuters reported, compared with estimates of a 0.2% rise as per economists polled by Reuters. On an annual basis, it increased 3% versus an estimated 2.6% rise.
Weekly jobless claims also came in higher than expected, with initial claims for state unemployment benefits increasing 17,000 to a seasonally adjusted 242,000 for the week ended December 7, Reuters reported. Economists polled by Reuters had forecast 220,000 claims for the latest week.
Still, Reuters reported that traders see the probability of a 25bp fed funds rate cut next week at about 97%, up from about 94% before the data, and are pricing in another three 25bp rate cuts in 2025.
As for markets, US Treasuries were effectively unchanged immediately ahead of the data and since the headlines, the market has seen a modest bull steepening bias emerge, BMO said. US stocks opened mixed to negative this morning.
In the IG primary yesterday, three offerings were priced totaling US$2.65bn, lifting weekly IG volume to US$17.6bn and December supply to US$40.8bn, according to IFR data. The average new issue concession for Wednesday's offerings was 2.0bp and the average order book was 3.57x subscribed, according to the data. The average progression from initial price thoughts to pricing was 23.50bp tighter.
Yesterday's IG issuance slate brought total December volume in line with expectations for the month for around US$41bn, ensuring that every month in 2024 met or exceeded supply expectations, BMO said.
In the HY primary, two issues were priced totaling US$1.5bn, raising weekly issuance to US$4.95bn and December volume to US$10.075bn.
The average IG bond spread narrowed by 2bp to 78bp on Wednesday, which is 1bp above the record tight of 77bp, and the HY bond spread tightened by 3bp to 264bp, according to ICE BofA data. US yields across asset classes edged up yesterday.
BMO said IG spreads tightened in reaction to the "on-the-screws CPI reading" yesterday that confirmed the Federal Reserve would cut rates at next week's meeting. "Following the narrowing, IG index spreads now sit approximately 1bp off YTD lows."
The push narrower in IG spreads yesterday came alongside strong volume, with secondary IG market activity running 15% above the average Wednesday over the past year, BMO said.
HIGH GRADE
The US investment-grade bond market is expected to have at least one offering on Thursday, slowing from yesterday's tally of three deals.
Office REIT Cousins Properties is issuing a US$400m seven-year senior unsecured bond. Leads set IPTs at US Treasuries plus 150bp area.
The debt offering is funding Cousins' US$521m purchase of a Texas office building, which is expected to close this month. Cousins also sold stock yesterday to help support the purchase.
On Wednesday, Microchip Technology sold the session's biggest bond offering. The US semiconductor company issued US$2bn of paper via a two-part senior unsecured note split evenly into three and five-year tranches that landed at spreads of US Treasuries plus 80bp and 93bp, respectively.
There were smaller bond offerings yesterday from private debt investor Blackstone Secured Lending Fund and REIT Mid-America Apartments, too. Both transactions were in senior unsecured format.
LEVERAGE/HIGH YIELD
Junk-rated borrowers continue to hit the primary to take advantage of secondary rallies in their bonds and the subsequent drop in financing costs.
Windstream is back in the market with a US$1bn add-on to its 8.25% 2031 ahead of expected pricing today.
The 2031s were issued in September at par and have since rallied to change hands on Wednesday at 105.386 to yield 6.909%, according to MarketAxess data.
The provider of fiber-based broadband to households and small businesses is using proceeds to refinance its 7.75% 2028s.
Yesterday saw two issuers raise a combined US$1.5bn in the primary market.
Diebold Nixdorf landed a US$950m 5.25-year non-call two offering at par to yield 7.75%.
STRUCTURED FINANCE
Octane Lending is slated to price its first RV and marine loan securitization today, adding to this week's asset-backed supply, which has topped US$2bn.
The fintech firm yesterday released price guidance on its US$119.47m offering. The US$67.2m Triple A rated two-year senior class is assessed at US Treasuries plus 105bp-110bp.
Meanwhile, EquipmentShare has begun marketing a US$400m equipment rental issue, which is a follow-up to its US$406m debut sold in August.
In the RMBS space, at least three non-QM issuers are planning to price their latest deals this week. Balbec, MFA Financial and A&D Mortgage aim to collectively raise over US$990m with their latest non-QM offerings.
LATAM
Yesterday, the central bank of Brazil hiked the Selic rate by 100bp to 12.25%. "Headline inflation and measures of underlying inflation are above the inflation target and have increased in recent releases," the central bank said.
Also yesterday, Moody's downgraded Telefonica del Peru to Caa1 from B2 and placed the ratings under review for further downgrade.
The ratings action reflects "the increasing refinancing risk and risk of debt restructuring over the next few months following the deterioration in Telefonica del Peru's liquidity position," Moody's said.
EQUITIES
ServiceTitan priced its Nasdaq IPO well above the upwardly revised marketing range to raise US$624.8m, a strong outcome for 2024's third US software debut and the last sizeable US IPO before the end of the year.
The software platform for tradespeople priced the sale of 8.8m Class A shares at US$71.00, above the US$65–$67 range, which had already been increased from US$52–$57 on Tuesday.
Goldman Sachs and Morgan Stanley acted as lead bookrunners while Wells Fargo and Citigroup were additional bookrunners. KeyBanc Capital Markets, Truist Securities, Canaccord Genuity, Needham & Company, Piper Sandler, Stifel and William Blair were passive bookrunners.
The offering was heavily oversubscribed, prompting the syndicate to earlier guide investors to above-range pricing and warn that allocations would be significantly cut back.
At the final price, ServiceTitan commands an enterprise value of close to US$7bn or about 8x forecast revenue for 2025, a discount to 9x for comps including construction management software firm Procore Technologies.
ServiceTitan shares will begin trading on Nasdaq on Thursday under the ticker "TTAN".
Also late Wednesday, private equity firm BC Partners sold US$500m of shares in online pet retailer Chewy via a Barclays-led block sale. (Chewy bought back another US$50m of shares from BC.)
Japan’s Orix offloaded about half of its remaining stake in geothermal power company Ormat Technologies via a Goldman Sachs-led US$281.9 block.
Nasdaq-listed NewAmsterdam Pharma collected US$416.5m from an upsized one-day marketed stock sale led by Jefferies, Goldman Sachs, Leerink Partners, TD Cowen, Guggenheim Securities and William Blair.
Financial Institutions, the parent of Five Star Bank, raised US$100m from an upsized overnight stock sale that will help reposition its underwater securities portfolio and boost earnings and interest margins.
In the CB market, enterprise cloud software firm Nutanix raised US$750m from the sale of a new five-year CB whose proceeds will be used to repurchase its own stock and also a portion of an old CB due to mature in 2027.
Morgan Stanley, Bank of America and Goldman Sachs priced the offering with a 0.5% coupon and 32.5% conversion premium, the issuer-friendly/aggressive ends of the 0.5%-1%, up 27.5%-32.5% price talk.