U.S. High-Grade Supply of $20 Billion Expected in Next Week


Investment-grade bond supply is expected to remain steady next week as companies are enticed by tight spreads and strong investor demand.

Syndicate desks are calling for $15 billion to $20 billion of fresh high-grade securities, with a greater percentage to come from corporate issuers after this week’s supply was dominated by banks.

That’s not to say banks won’t be represented. Much like an issuance surge that followed earnings reports three months ago, financial institutions are expected to continue to borrow. JPMorgan Chase & Co., Citigroup Inc., and Wells Fargo & Co. have yet to sell fresh bonds after presenting second-quarter results. JPMorgan may be the next big bank to issue debt, according to Arnold Kakuda, senior financials credit analyst at Bloomberg Intelligence.

U.S. High-Grade Supply of $20 Billion Expected in Next Week

Borrowing conditions remain favorable. The benchmark 10-year Treasury yield fell for a third consecutive week, pushing all-in funding costs even lower for high-grade companies that have enjoyed cheap debt all year. Meanwhile, investment-grade bond spreads for weeks have remained near the tightest level since before the Great Financial Crisis.

“A common theme in credit markets in the past few months has been the lack of volatility,” Barclays Plc strategists led by Bradford Elliott wrote Friday.

In coming months, investors should watch for the potential of higher rates to impact credit supply composition. A pickup in rates is likely to shift new bond supply to shorter durations, and encourage floating-rate transactions, Bank of America Corp. strategists led by Hans Mikkelsen wrote Thursday.

“The outlook for higher rates means even more front-end and floating rate supply in the second half of 2021,” Mikkelson wrote.

High Yield

Carnival Corp. is looking to slash borrowing costs by selling new junk bonds to refinance debt sold at the height of the pandemic at almost triple the current cost. The cruise operator’s new offering may be sold as soon as next week, and early pricing discussions are in the 4%-4.125% range, according to people with knowledge of the transaction.

The proceeds will finance a tender offer, launched last week, to buy back as much as half of Carnival’s $4 billion three-year secured notes with a whopping 11.5% coupon.

Meanwhile, McGraw-Hill Education Inc. is expected to price $1.15 billion of junk bonds and a $1.15 billion leveraged loan to finance its buyout by Platinum Equity LLC. The bond documents include unusually aggressive provisions that will make it easier for the textbook company to pile on more debt in any future acquisitions.

In U.S. leveraged loans, a lender call is set for Monday for Pilot Travel Centers LLC’s $3.5 billion term loan to refinance debt and fund the redemption of outstanding preferred equity interests.

Commitments are due next week for Whataburger LLC’s $2.3 billion term loan to refinance existing debt and Verizon Media’s $1.5 billion in term loans to finance its acquisition by Apollo Global Management.

In distressed credit, GTT Communications Inc.’s forbearance agreement with lenders is set to expire Tuesday. The company is seeking to win creditor support for a planned bankruptcy filing, and is discussing a plan that would give its junior bondholders some equity in a reorganized company.

Exela Technologies, the latest debt-laden business tapping hot equity markets, said it listed option contracts on NYSE Arca starting July 16. The company recently completely an equity offering which raised $85 million and cut debt.

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