High-Grade Bond Issuers Line Up $35 Billion as Virus Fears Flare
High-Grade Bond Issuers Line Up $35 Billion as Virus Fears Flare
(Bloomberg) -- Blue-chip companies are expected to storm primary markets next week before sales taper in a typical December lull even as investors focus on a new coronavirus variant that sparked a global rout on Friday.
Wall Street syndicate desks are projecting about $35 billion of new investment-grade issuance next week and approximately $55 billion for December. Corporate credit joined the global markets selloff on Friday, with cruise lines, car renters and movie theaters bearing the brunt as virus mutation fears zoomed into focus.
The slump could impact sales if it continues into next week, but so far this year markets have rebounded quickly from any weakness and supply has only taken slight pauses, according to Barclays Plc credit strategist Scott Schachter. That trend may continue, he added.
“Issuers likely still need to tap markets before new issue markets hit the normal late December slowdown,” Schachter said in an interview Friday.
Any potential deceleration in issuance may be a good thing for investors looking for opportunities in the primary market, which is starting to get “sloppy” and needs to take a breather, said Scott Kimball, head of investments for U.S. fixed income at BMO Global Asset Management. IT services company CDW Corp. paid no new issue concessions for $2.5 billion high-grade deal, thanks to demand that peaked at $5 billion.
“It’s just been a revolving door of new issuance and there hasn’t really been, in our opinion, generation of enough concessions to participate too broadly,” said Kimball in an interview Friday.
Meanwhile, General Electric Co. said it now expects to buy back $25 billion of bonds, expanding one of the biggest debt repurchases ever, after finding strong demand from investors to sell the securities. GE had sought to buy back as much as $23 billion of the securities and it now expects to cut its debt levels by more than $80 billion by the end of the year from the end of 2018.
Junk Calendar
In the junk-bond market, there are no deals currently in the pipeline as sales activity dwindled before Thursday’s U.S. holiday. Issuance conditions have softened with yields rising to 4.66% this week -- the highest in nearly a year -- though the deteriorating backdrop has recently driven some companies to sell debt before the tone further weakens.
Three meetings for leveraged loans are on deck for next week, including an incremental offering for financial software firm Confluence Technologies Inc. that funds its sponsors’ takeover of two companies. Food processing tool company Bettcher Industries Inc. is also slated to hold a call for a $385 million financing package that backs its buyout by KKR.
Lender commitments are due Tuesday for American Physician Partners’ $520 million refinancing loan after the company sweetened pricing on the sale, cut its tenor and added financial maintenance covenants. Its deadline was previously Nov. 22.
Distressed debt buyers will be watching for November ISM manufacturing survey results on Wednesday, which are expected to provide a check on whether companies sense the fourth quarter will mark the worst for supply chain bottlenecks. Mattress sellers, flooring manufacturers and makers of clean energy equipment are warning that stretched supply chains and runaway freight bills have pushed them to the brink of ruin.
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