U.S. High-Grade Bonds Braced for $30 Billion in Late Summer Dash

Expect U.S. investment-grade bond supply to be front-loaded next week as companies push to get deals done before a usual August slowdown takes hold, and amid conflicting economic indicators.

Projections range between $25 billion to $30 billion with Monday likely to see borrowers number in the double digits, according to an informal survey of debt underwriters. This week saw more than $32 billion in volume, the second in a row where supply exceeded forecasts.

Investment-grade remains strong amid good jobs growth in the U.S., even as the delta variant’s spread delays reopenings and pushes back return-to-office plans for September. Issuance has stayed active as companies see no reason to take a chance and wait on selling debt.

Sales will slow in late August as people head out on vacation, said Jeanmarie Genirs, managing director and head of syndicate at Deutsche Bank AG. Lower rates have forced companies to take a hard look at their financing needs over the next six-to-12 months, Genirs added.

“Borrowers don’t like to pre-fund too early as they have to consider the cost of holding cash that they don’t need yet,” she said. “But some of the dynamics have changed with mask mandates coming back and potential impacts to future business, and companies have the benefit now of lower interest rates so some are pulling forward future financing needs.”

Concerns over delta are hitting the leveraged finance market harder. The pile of distressed debt has increased by about 25% from June lows, and some companies have had to pay more than expected to get deals done. Meanwhile junk spreads have mostly increased after reaching post-financial crisis tights in July, though improved slightly on Friday.

Where’s the Slowdown?

An expected downshift in leveraged loan issuance has failed to materialize as more than two dozen companies announced offerings this week -- most to fund acquisitions or buyouts. This flood ensures a heavy first half of August as the deals make their way through the syndication process.

Next week begins with at least five lender meetings, including one Monday for Centuri Group Inc.’s $1.15 billion loan that backs its purchase of Riggs Distler & Co. The tail end of the week is packed with deadlines: Among them is SeaWorld Parks & Entertainment Inc., which is expected to wrap up a $1.1 billion refinancing transaction on Thursday.

In high-yield, Sunnova Energy Corp., one of the biggest U.S. residential-solar companies, is selling sustainable bonds for the first time as more homeowners demand clean power. The company is looking to raise $350 million in senior unsecured high-yield debt to finance or refinance existing or new eligible green projects. The deal is expected to price around Wednesday.

Earnings continue next week, with theater chain AMC Entertainment Holdings Inc. and formerly bankrupt rental car company Hertz Global Holdings Inc. both reporting on Monday.

©2021 Bloomberg L.P.

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