As Big Banks Report, $40 Billion of Bonds Are on Tap in U.S. Credit

The biggest U.S. banks that borrowed heavily at the end of last quarter are reporting earnings next week and may access the investment-grade market for new capital. Meanwhile, Asurion LLC is expected to wrap up one of the largest dividend-linked debt deals in the leveraged loan market.

Wall Street syndicate desks are projecting as much as $40 billion in high-grade bond sales in the next five trading days, more than double the $16 billion sold week. The big six domestic banks are candidate to sell debt, while Yankee issuers, which accounted for 90% of week’s supply, may also bring more deals.

JPMorgan Chase & Co., and Goldman Sachs Group Inc. kick off reporting on Tuesday, Bank of America Corp., Citigroup Inc. and Wells Fargo & Co. on Wednesday, followed by Morgan Stanley on Thursday. The banks are expected to post weaker second-quarter results, with analysts predicting a 28% tumble in trading revenue and a combined 3% drop in total loans for the commercial banks.

The move lower in Treasury yields may boost supply on the margin as issuers take advantage of “increasing attractive funding levels” to bring forward transactions, according to JPMorgan. A persistent lower yield environment may also result in a pick up in near-term spread volatility and hurt demand from pension funds and insurance buyers, strategists led by Eric Beinstein wrote in a note Thursday.

But demand is strong for now as investors continue to pour money into funds that buy high-grade debt. Even with so much issuance already, blue-chip companies have a continued desire to repurchase shares, increase dividends, make strategic acquisitions and invest in capital expenditure, according to Tom Joyce, head of capital markets strategy at Mitsubishi UFJ Financial Group Inc.

“We expect a continuation of strong issuance levels driven by a combination of refinancing and strategic activity as companies seek to take advantage of what they believe is going to be a multi-year elevated growth,” Joyce said in an interview this week.

Related: BofA Sees as Much as $515 Billion of High-Grade Bond Sales in 2H

Dividend Debt

Insurance and replacement services provider for wireless devices Asurion is expected to close its sale of a $500 million first-lien term loan and a $2.8 billion second-lien term loan to pay a dividend to shareholders, one of the largest-ever such deals in the leveraged loan market. Commitments are also due for First Student Bidco and First Transit’s $2.015 loan to help fund the acquisition of the company by EQT Corp.

At least five bank loan meetings are scheduled for next week, including for EQT AB’s sale to another fund of preventive pest control company Anticimex, door and window manufacturer Jeld-Wen Inc.’s $550 million refinancing loan and for a $1.575 billion loan to help finance the combination of Worldwide Express and GlobalTranz.

In the high-yield bond market, debt sales to help fund Millennium Escrow Corp. and First Student Bidco and First Transit’s mergers and acquistions will set the tone and gauge investor’s appetite for leveraged buyouts.

In distressed debt, a number of coupon payments come due for companies including Exela Technologies Inc.’s 10.0% bonds due 2023, Transocean Inc.’s 7.5% bonds due 2026 and Talen Energy’s 10.5% notes also due 2026. Among companies in active negotiations with lenders, GTT Communications Inc. faces a forbearance deadline of July 12 with its lenders, while Sequential Brands pushed its forbearance out from July 1 to next month.

Debt buyers will also keep an eye on the June U.S. consumer price index report expected on Tuesday for insights on inflationary pressures and Federal Reserve Chair Jerome Powell’s appearance before the Senate Banking Committee to deliver the semi-annual Monetary Policy Report to Congress on Thursday.

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