Flood of investment-grade bond sales set to ease next week

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(Bloomberg) — After the fourth-biggest month on record for sales of premium products in the United States, companies are expected to bring in a more modest $25 billion to kick off the first full week of April.

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High quality borrowers rushed into the market all of March before rates climbed even higher. The $230 billion volume beat consensus expectations of $135 billion and was the biggest hit in at least three years, according to data compiled by Bloomberg. April is expected to slow to around $90-100 billion, easing pressure on yields.

The benchmark US high-quality credit index fell 7.7% in the first quarter, nearly matching the fall of the global financial crisis. And losses for the year could hit the mid-teens, according to Bloomberg Intelligence – the worst since records began in 1973.

“Technicals should continue to be strong, if history is any guide. April is typically one of the strongest months of the year, due to revenue cuts keeping emissions low,” they said. writes Bradley Rogoff and Dominique Toublan of Barclays Plc in a note on Friday.

New bond offering estimates for April include a potential deal from Oracle Corp. to fund its acquisition of medical records systems provider Cerner Corp. Corebridge Financial Inc. was the latest company to successfully complete a major transaction, selling $6.5 billion worth of bonds. Thursday with peak order books of $33 billion. March also brought the first intraday inversion in the 2-year and 10-year Treasury yield curve since 2019, a signal that the United States could be heading into a recession.

The Federal Reserve will release the minutes of its March 16 meeting on Wednesday, April 6.

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The US leveraged loan market ended the first quarter with one of the slowest weeks of the year for issuance. Bankers, for now at least, are focused on getting a handful of deals down the line to fund takeovers.

“M&A financing is interesting right now because there are deals coming up that were committed in better markets before Russia invaded Ukraine,” said Peter Toal, global co-head of the bond syndicate at Barclays, in an interview with Bloomberg.

“The good news is they’re finding levels,” he said.

A more constructive tone this week helped packaging company Novolex Holdings increase the size of a sustainability-linked loan funding its takeover by Apollo Global Management Inc. to $3 billion from $2.63 billion and to cut the discounted price to 97.5 cents on the dollar from 96 cents. A sale of junk bonds, the other part of the debt package, was reduced by $370 million.

“What we typically see from the investor side is risk aversion. Either they sit on their hands and wait for the world to be clearer or they don’t make deals with the same conviction,” Toal said. In other selloffs, you would have seen investors come in now because markets look cheap, he added.

Toal is not sweating the pipeline of buyout financings that need to be made in the face of market volatility. Aside from yet-to-be-announced multi-billion debt sales to fund takeovers of software company Citrix Systems Inc. and Nielsen Holdings Plc, upcoming deals are generally smaller and therefore manageable, he said. he adds.

A private equity consortium has secured approximately $11.15 billion in committed debt financing to fund its acquisition of New York-based Nielsen, which provides audience data services to many leading networks of the media industry, Bloomberg reported earlier this week. Earlier this year, a group of 10 banks provided $16 billion in debt commitments to fund Vista Equity Partners and Elliott Investment Management’s take-private deal of Citrix.

Scientific Games Corp., which has a portfolio of gaming products and services, will host a lender call on Monday for a $2.2 billion loan to refinance debt in what is a light pipeline for deals next week. A banking meeting for a $1.285 billion loan funding the takeover of CRH Plc’s Oldcastle Building Envelope unit by KPS Capital Partners is also scheduled for the same day.

More borrowers may decide to brave the market after a rally in secondary prices and two consecutive weeks of inflows into loan funds. Funding for the takeover of CRH Plc’s Oldcastle Building Envelope unit by KPS Capital Partners LP could also be announced as early as next week, according to a person familiar with the matter.

The timing of junk bonds is also light after the slowest first quarter of issuance since 2016, according to data compiled by Bloomberg. But demand is picking up with funds investing in US high-yield bonds, breaking an 11-week streak of outflows, seeing an inflow totaling $1.24 billion for the week ended March 30.

New issues sold this week, including those from Novolex and Kentucky Derby racetrack owner Churchill Downs Inc., also traded higher in the secondary – another sign the market is stabilizing – while yields have fallen, making borrowing costs more attractive for companies looking to take on debt.

And in distress, Ion Geophysical Corp. has a forbearance agreement expiring April 4.

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