Junk Bond Issuance to Slow Next Week After Sales Blitz
(Bloomberg) -- The U.S. high-grade primary market is expected to finally settle into a summer lull and remain relatively quiet until after the Labor Day weekend.
Syndicate desks are forecasting $10 billion to $15 billion of fresh investment-grade supply next week, with most anticipating it to be early in the week. Even with the slowdown, August volume is anticipated to exceed the $80 billion monthly forecast after issuers blitzed the market with 38 deals in the first three days of this week.
August activity has largely been in line with recent years when adjusting for the overall size of the market, according to Citigroup Inc. strategists.
“While early August supply has seemed intense, it is trending in line with average issuance of the previous five Augusts when issuance is scaled to the size of the market,” strategists led by Daniel Sorid wrote Thursday.
With many Wall Street traders and bankers taking time off over the second half of the month, there could be potential for increased spread volatility.
“You have a lot of Street traders out of office so if accounts need to sell anything to fund the calendar, bids might not be as aggressive,” said Travis King, head of investment grade corporates at Voya Investment Management. “If anything it just provides a little more potential volatility for investment-grade spreads if Jackson Hole produces any surprises,” referring to the annual economic symposium sponsored by the Federal Reserve Bank of Kansas City in Jackson Hole, Wyoming.
Junk bond issuance is also expected to slow next week following a heavy period of sales, but the calendar won’t be blank.
Cooke Omega Investments Inc. will continue on a roadshow for a $580 million note sale, while International Paper Co.’s wholly-owned subsidiary Sylvamo Corp. is offering $500 million of senior unsecured bonds.
The primary market met with some relative resistance this week, with at least three deals wrapping up at price talk or wider. Junk yields are also rising. Still, the funding environment remains historically appealing despite the recent weakness, and many --though not all -- new issues continue to see healthy investor orders, Bloomberg strategist Michael Gambale wrote Thursday.
At least 17 U.S. leveraged loan deals totaling about $8.5 billion are expected to close next week. Multiplan Corp.’s $1.6 billion refinancing term loan and Centuri Group Inc.’s $1.15 billion term loan to fund its acquisition of Riggs Distler are among the deals due in the upcoming week.
A lender call is set for Monday for Packers Holdings LLC’s $165 million term loan to fund its acquisition of Safe Foods Inc.
In distressed debt, the trial over Purdue Pharma LP’s bankruptcy plan continues this week.
Troubled sports TV broadcaster Diamond Sports Group LLC has an interest payment due Monday, and GTT Communications Inc.’s forbearance agreement is set to expire on August 17.
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