Telecoms Spending on 5G May Open Door for More Bond Deals
(Bloomberg) -- Corporate credit investors are bracing for another busy week in primary markets after Verizon Communications Inc. sold the largest investment-grade bond of the year.
Wall Street syndicate desks are projecting as much as $40 billion in fresh supply next week after $53.5 billion was raised this week, surpassing forecasts that called for as much as $50 billion. Verizon, the largest U.S. wireless carrier, contributed $25 billion of that tally to help finance purchases of 5G airwaves.
The deal is the largest this year and ties Boeing Co. for the sixth largest high-grade debt sale on record. Book orders peaked at $109 billion, allowing the company to pay zero to seven basis points in new issue concessions after initially dangling premiums of 33 basis points to 38 basis points.
Verizon signed a $25 billion delayed-draw term loan in late February to support the acquisition of spectrum and rival AT&T Inc. entered a new term loan for $14.7 billion in February for similar purposes. Both facilities are expected to be largely repaid with new bonds once drawn.
“I would expect them to capitalize on any momentum seen in their sector, so if Verizon received some enthusiasm for their deal, AT&T will likely follow suit,” said Scott Kimball, co-head of U.S. fixed income at BMO Global Asset Management.
Federal Reserve Chair Jerome Powell will likely reaffirm his no-tightening policy stance at the Fed policy meeting on Wednesday. Financial market mainstays from Guggenheim Investments to JPMorgan Chase & Co. are growing increasingly bullish on credit, brushing off worries over rising inflation and Treasury yields that have weighed on the asset class in recent months.
“Demand will be there but for specific credit stories and themes, like companies expected to benefit from reopening and anything that’s commodity-related,” said Matt Brill, head of U.S. investment-grade credit at Invesco Ltd. “It’s not going to be a blanket beta trade.”
The U.S. high-yield market is about $9 billion short of becoming the second-busiest March on record in terms of issuance after American Airlines Group Inc. propelled this month’s volume to more than $25 billion.
The primary market has remained active despite a weekly outflow of $5.33 billion from U.S. high-yield funds, according to Refinitiv Lipper, the largest cash exit since July. U.S. junk bonds rebounded to post the biggest one-day gain in more than two months on Thursday, putting the market on track to end a three-week losing streak.
Vici Properties Inc. is planning to sell about $1.7 billion of junk-rated bonds to help pay for its $4 billion acquisition of the real estate of the Venetian resort and its convention center from Las Vegas Sands Corp. Vici expects to start marketing the new bonds to institutional investors over the coming months but timing will be dependent on Apollo Global Management obtaining regulatory approvals to acquire the Venetian’s operating assets in a related transaction.
In the leveraged loan market, there are at least 16 deals with commitments due next week, including $735 million of term loans that will help fund the buyout of Flow Control Group by KKR.
Distressed mall owner Washington Prime Group faces an expiration of a grace period for a missed payment on its unsecured notes Monday. The real estate investment trust said last month that it would use a 30-day moratorium to continue negotiations with its lenders. The company is also scheduled to present at the Roth Capital Partners conference that same day, along with Talos Energy Inc. and W&T Offshore Inc.
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