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What to Watch in U.S. Corporate Credit Markets This Week

What to Watch in U.S. Corporate Credit Markets This Week

(Bloomberg) -- Stable credit conditions and low funding costs could result in borrowers offering debt, but primary market players may hold fire as they weigh more quarterly earnings and the latest indications from Fed speakers regarding the size of the expected rate cut later this month.

High-Grade Holding Off

Despite steady credit spreads -- they’ve only see-sawed by a single-basis point all month -- further fund inflows and a heap of companies set to exit voluntary earnings blackout, investment-grade syndicate desks are projecting just $20 billion of new supply this week. Last week’s muted activity could have something to do with the conservative outlook. A dealer survey had called for $30 billion while less than half that priced.

Read more: High-grade calendar to remain light with $20b expected next week

A shortage of deals from the big banks played a part in last week’s miss, but what’s less certain is why four of the six largest domestic lenders skipped typical post-earnings issuance. A range of explanations exist, including a preference to wait until the July 31 Fed rate decision and the appeal of overseas funding, but market watchers will have another slice of the financial space to keep an eye on for clues -- regional money centers SunTrust Banks Inc. and Fifth Third Bancorp are candidates for debt sales this week.

Heading for the Checkered Flag

Commitments are due July 26 for Nascar Holdings Inc.’s term loan. The sports entertainment company is looking to zoom through the U.S. leveraged-loan market with its $1.4 billion offering to back its $2 billion acquisition of International Speedway Corp. According to Moody’s Investors Service, the company’s proforma leverage for the purchase is “moderately high” but a portion of free cash flow will go toward cutting debt. A decline in fan interest is expected to remain a challenge to the company, the ratings agency said.

Other large offerings garnered strong demand last week, prompting a number of $1 billion-plus loans to accelerate timing, a positive sign for Nascar.

Also see: Nascar speeds toward finish line in strong week for big loans

High-Yield Hitting the Brakes?

In the junk bond market, a slowdown could be in store after a hectic month. As of Friday, only one deal is expected to price this week. Advisor Group is meeting investors through July 25 for its $400 million senior note offering.

Meanwhile, Janney Investment Strategy Group is urging investors tocut their junk bond exposure while there’s still liquidity, pointing to a time not too long ago as an example. Corporate credit analyst Jody Lurie says the first nine months of 2018 saw high-yield rally before spoiling in the year’s final two months. “Investors were too busy hunting for yield to remember how quickly the rug could be pulled out from under them.”

Heavy month-to-date supply has put some pressure on the market but spreads may be poised to see some relief as cash continues to trickle into high-yield debt funds and oil prices rebound.

--With assistance from Kelsey Butler and Adam O. Manzor.

To contact the reporter on this story: Allan Lopez in New York at alopez11@bloomberg.net

To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, Christopher Maloney, Rizal Tupaz

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