The dollar corporate bond market showed its customary resilience this week, as borrowers continued to raise financing. But deals are increasingly concentrated into a limited number of decent issuance windows as syndicate bankers navigate the primary calendar on a name-by-name basis.
Monday went without a deal — the 10th weekday this year that has happened. But eight borrowers took their chances on Tuesday.
A higher than expected consumer price inflation reading on Wednesday sent borrowers scurrying back to the sidelines: just one braved the market. But on Thursday morning credit was stable relative to other asset classes and supply rebounded strongly.
Intercontinental Exchange, the exchanges group headed by Jeffrey Sprecher (pictured), led the way on Thursday with a $6.75bn five part trade in choppy markets to finance its $13.1bn acquisition of Black Knight, the real estate data company.
NXP Semiconductors was also out with two tranches including a green 10 year.
The ICE trade was keenly watched. Bankers hope it will set the tone for a more stable market, as issuance is expected to increase in the second half of the month.
Syndicate desks predicted $135bn of corporate and FIG issuance in May, but so far there has only been $30bn after borrowers put trades on hold.
“May is usually one of the busiest months but borrowers may want to see a few more days of stability across the market before they can be teased out,” said a syndicate banker at a European bank in New York. “Corporate borrowers have flexibility built into their funding plans and some can afford to wait, but borrowers with immediate funding needs are stepping forward rather than waiting to see how this will play out.”
ICE started by offering about 40bp of new issue concession, hoping to tighten it to 15bp-20bp, the going rate this week. “This is a modest risk-off day and Treasury yields are dropping by 10bp in some parts of the curve," the banker added. "It’s an attractive option for borrowers focused on the coupon.”
Investors have been willing to participate, albeit at higher new issue concessions. The head of investment grade debt capital markets at a US bank said: “We used to only move forward when it was a 10 out of 10 day. Now we don’t let perfection get in the way of market access.”
Borrowers have adapted to the new normal. They know the near-perfect funding conditions of the last decade are now over, and they need to pick the least bad day rather than hope for perfection. “Although spreads have drifted wider and we’re seeing outflows, IG has remained stable relative to other asset classes,” said the syndicate banker.
But execution varied from borrower to borrower. On Wednesday chemicals company Albemarle, rated Baa3/BBB, printed a $1.7bn three part trade via Bank of America, JP Morgan and Mizuho.
It sold $650m of 4.65% five year notes at 175bp over Treasuries, $600m of 5.05% 10 years at 210bp and $450m of 5.65% 30 years at 255bp.
The next day its 10s and 30s were trading 20bp wider. “Less liquid issuers may struggle to get investor attention when pricing is opaque,” said a source away from the trade.
Caterpillar Financial Services (A2/A) came to the market with a $1.75bn two part offering. The funding arm of the industrial machinery manufacturer sold a $500m 1.5 year floater at 45bp over Sofr and a $1.25bn three year fixed rate tranche at 65bp. BofA, Citi and MUFG were steering.
There was also supply from utilities. Public Service Co of Colorado (A1/A) hired CIBC, Goldman Sachs, JP Morgan, Mizuho and PNC to place $300m of 4.1% 10 year notes at 120bp over Treasuries and $400m of 4.5% 30 years at 140bp.
Piedmont Natural Gas Co, rated A3/BBB+, raised $400m of 30 years at 197bp through Mizuho, RBC, SMBC and Wells Fargo.
For ENN Energy Holdings, rated Baa1/BBB+, 20bp of new issue concession was needed for its five year green bond.
“We think elevated new issue [premiums] will continue until we see multiple days of stability across the market," said the head of IG DCM, "not just in IG but in Treasuries too.”