IFR SNAPSHOT – HY primary steps up as IG steps aside for today – International Financing ReviewJune 30, 2022
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The HY primary expects at least one offering today as the IG primary takes a pause amid market volatility.
The ECM primary, after seeing one IPO break a multi-week drought on Monday evening, reverted back to recent form with no IPOs and just a handful of block trades and stock sales yesterday evening.
US stocks stumbled out of the starting block this morning after the US government reported gross domestic product fell at a 1.6% annualized rate last quarter. The figure was revised down from the 1.5% pace of decline reported last month, according to this morning’s report from the Bureau of Economic Analysis. The economy grew at a robust 6.9% pace in the fourth quarter.
Stocks then regained their footing with all three indexes shifting into positive territory. In US Treasuries, the 10-year benchmark note yield was hovering around 3.14% in morning trade.
The IG primary on Tuesday saw four offerings priced totaling US$2.9bn, pushing weekly IG issuance to US$8.35bn and June IG volume to US$70.75bn, according to IFR data.
On Tuesday, the average IG bond spread edged out 2bp to 156bp and the HY spread widened by 15bp to 526bp, according to ICE BofA data.
No investment-grade offerings are expected to hit the bond primary on Wednesday after market conditions yesterday resulted in limited price progression and hefty concessions for the four high-grade bonds that were printed in the session.
“The reason issuers that are coming to market in these conditions is because they have real money funding needs that are not going away and that they can’t put off for too long,” said Linda Kong Ting, senior director and credit analyst at SLC Management, on Tuesday.
For example, insurance companies F&G and Protective Life both raised US$300m from their funding agreement-backed securities offerings. She said the flurry of FA-backed issuance this week was driven by the demands of the insurance business and thus limited these borrowers from taking a more opportunistic approach.
The two other borrowers were industrial manufacturer Pentair and Japanese bank Nomura. The latter used D&I bookrunners as co-managers for its US$1.9bn three-part bond deal.
Concessions across the four offerings ranged between 20bp and 30bp, according to IFR calculations.
The insipid reception for the new supply reflected the choppy market conditions by the end of Tuesday’s session, which saw the S&P 500 benchmark stock index close down 2%.
“The initial positive tone likely enticed less regular and liquid borrowers to announce new issues. It seems reasonable to expect not all would not have come to market if yesterday’s broader tone had taken effect before the open,” said BMO analysts in a report today.
One high-yield deal is expected to price on Wednesday.
FTAI Infrastructure is expected to price a US$500m five-year non-all three senior secured note today in the primary. Lead left is Morgan Stanley with bookrunner Barclays. Price talk has not yet been disclosed.
The offering will fund the spin-off of FTAI Infrastructure from FTAI into a separate company. Net proceeds from the deal, along with US$300m in preferred stock, will be used to pay a dividend to FTAI, which will use it to repay debt.
Home retailer Bed Bath Beyond‘s high-yield bonds were trading down this morning after the company announced the departure of its CEO and reported net sales fell 25% in the most recent quarter compared to the same year-ago period. Its 3.739% 2024 notes were trading down 9.84 points to yield 29.4%, while its 5.165% 2044 notes were trading down 5.72 points to yield 18.05%, according to MarketAxess.
The structured finance primary is expected to be muted on Wednesday after several issues priced yesterday with three ABS deals raising a combined US$1.1bn.
At least one asset-backed transaction may price before Friday, a US$1162.8m equipment securitization from Channel Partners Capital, CPCAS 2022-1.
In the RMBS market, Angel Oak has been marketing a non-QM offering, the US$217.2m AOMT 2022-4.
The CMBS sector has quieted down considerably after the pricing of three deals the past two days. No other issues are expected to price this week, market participants said.
While there has not been any material deterioration in mortgage credits, extension risk on mortgage-backed paper remains high due to the likelihood of even higher interest rates the rest of this year. This makes it challenging for investors to buy new RMBS and CMBS, a buyside source said.
“It’s been dangerous to call a bottom to this market because spreads can still go wider and wider,” he said.
IRSA, Argentina’s largest real estate firm, announced yesterday the extension of the expiration of a bond exchange to July 6 from June 28.
The offer is to exchange any or all of its US$360m outstanding of 8.75% notes maturing in 2023 for newly issued 8.75% senior notes due 2028 and cash for up to US$108m. As of June 28, 61.74% of the aggregate principal had been tendered. The offer was first announced on May 16.
S&P revised yesterday its outlook on Mexican conglomerate Grupo Alfa‘s outlook to positive from stable and affirmed its long-term BBB- issuer credit rating on the company and its BB+ issue-level rating on the company’s debt. The positive outlook reflects the rating agency’s view that Alfa’s rating could be raised by one notch in the next 12 months if the company “maintains positive momentum across its two business segments and key markets.”
The rating agency also changed the outlook on Alfa subsidiary, the multinational food processor and distributor Sigma Alimentos to positive from stable, keeping the issuer rating at BBB-, to reflect its revision of the parent.
S&P on Tuesday removed Gran Tierra Energy’s 2025 and 2027 notes from CreditWatch negative, affirming its B senior unsecured debt ratings, on a terminated exchange offer. The Canadian oil producer, which has assets concentrated in Colombia, had cancelled a recently proposed bond swap.
Yesterday, LatAm sovereign five-year CDS yesterday widened 15bp for Colombia, 12bp for Brazil and 5-9bp for Mexico, Chile and Peru, according to Lucror Analytics.
After breaking a six-week lull for new issues, copper miner Ivanhoe Electric provided little inspiration for a near-term US IPO market recovery.
Ivanhoe shares dipped 8% to US$10.80 in its debut session on Tuesday, below the US$11.75 offering price of its US$169m NYSE American/TSX IPO. The post-close still saw an uptick in ECM activity from companies rushing to raise capital ahead of the upcoming Fourth of July holiday weekend.
Gaming and Leisure Properties (GLP) returned to ECM to raise US$309m from an all-primary block trade to help fund the acquisitive casino REIT’s US$1bn purchase of two Rhode Island properties from operator Bally’s. Wells Fargo, JP Morgan, RBC Capital Markets and Goldman Sachs reoffered 6.9m GLP shares or less than 3% of the REIT at US$44.75, within the US$44.45–$46.20 range and a 4.1% discount to last sale. The offering was a near carbon copy of GLP’s previous stock sale in December, when it sold 7.7m shares at the same reoffer price and a 3.7% discount to help fund its US$1.8bn purchase of casino properties from the Cordish Companies.
Also overnight, biotech 89Bio raised an upsized US$94.5m from an overnight stock sale after giving some select investors a preview of positive trial results for a liver disease drug in an earlier confidential marketing exercise. The offering was significant for 89Bio, which had a market cap of just US$70m going into last night’s stock sale. Joint bookrunners Bank of America and SVB Securities priced 26.6m shares/pre-funded warrants at no discount to Tuesday’s US$3.55 closing price, though the pre-funded warrants were sold at US$3.549.
As a kicker, 89Bio also issued 9.3m accompanying warrants to investors that will become exercisable at US$5.325 a share. Alongside the offering, 89Bio released Phase II proof-of-concept results for a drug that lowers triglyceride levels in liver fat. It is using the proceeds to fund a Phase III trial beginning next year. 89Bio is also running a separate Phase III trial for the same drug as a treatment for fatty liver disease, which is currently being enrolled.
Cash-strapped Aspen Aerogels rounded out the night’s ECM activity by launching a two-part US$375m equity-linked raise comprised of straight equity (US$225m) and convertible bonds (US$150m) for pricing post-close Wednesday. Aspen is selling stock near 52-week lows, as its shares have fallen some 70% this year.
The offering is designed to cover an impending cash crunch rather than bleed out by selling stock through an at-the-market equity plan. Barclays, Jefferies and Bank of America are acting as joint bookrunners on both the all-primary equity offering, which on its own weighs in at a meaty 30% of the enlarged company and 40-days’ trading volume, and the CB.
The five-year CB is marketed at a 6%–6.5% coupon and a 22.5%–27.5% conversion premium, terms likely to attract the long-only community. Aspen, which makes thermal insulation products for EV batteries, structured the security as a green CB, which should provide some appeal for ESG-minded investors.