GOOGL: The ABC’s of Successful Corporate Debt Issuance; Mischler Comment
August 3, 2016   //   by Mischler MarCom   //   Debt Market Commentary, Recent Deals  

Quigley’s Corner 08.02.16- Alphabet Inc: ABC’s of a Successful Corporate Debt Issuance

 

Investment Grade Corporate Debt New Issue Re-Cap

Global Market Recap

IG Primary Market Talking Points: 

New Debt Issues Priced- Alphabet Inc (NASDAQ:GOOGL); Hershey Co (NYSE:HSY); Intl Paper (NYSE:IP); Mattel Inc (NASDAQ: MAT)

Lipper Report/Fund Flows

IG Secondary Trading Lab

Economic Data Releases
Rates Trading Lab

Investment Grade Credit Spreads (by Rating/Industry)

New Issue Pipeline

M&A Pipeline

 

9 IG Corporate issuers priced 12 tranches between them totaling $9b.  One AFDB tap for $250mm in the SSA space brought today’s all-in IG day totals to 10 issuers, 13 tranches and $9.25b.  What’s more astonishing, however, is that the first two days of August have already priced 53% of syndicate desk’s midpoint average forecast for IG Corporate new issuance for the entire month or $32.40b vs. $61.13bWTD we priced 23% above this week’s syndicate average estimate or $32.40b versus $26.22b.

             

Global Market Recap

 

  • JGB’s: 3 very poor days in a row.
  • S. Treasuries – USTs, Bunds & Gilts were led down by JGB’s (again).
  • 3mth Libor – Set at highest yield since May 2009 (0.76760%).
  • Stocks – Dow headed for 7th losing session in a row (3:30pm).
  • Overseas Stocks – Banks lead Europe lower. Nikkei down & Shanghai higher.
  • Economic – U.S. inflation data was low. EU PPI remained negative but improved.
  • Currencies – Bad day for the USD & DXY Index. Strong day for Yen & Pound.
  • Commodities – CRB & crude oil down (lows since April), gold well bid & wheat low since 2006.
  • CDX IG: +1.75 to 76.98
  • CDX HY: +7.95 to 418.20
  • CDX EM: +1.76 to 265.02

*CDX levels are as of the 3PM ET UST close.

-Tony Farren

 

IG Primary Market Talking Points

 

  • The average spread compression from IPTs thru the launch/final pricing of today’s 12 IG Corporate new issues only was 16.17 bps.

 

Syndicate IG Corporate-only Volume Estimates for This Week and August

 

IG Corporate New Issuance This Week
8/01-8/05
vs. Current
WTD – $32.40b
August 2016 vs. Current
MTD – $32.40b
Low-End Avg. $25.13b 128.93% $60.48b 53.57%
Midpoint Avg. $26.22b 123.57% $61.13b 53.00%
High-End Avg. $27.30b 118.68% $61.78b 52.44%
The Low $15b 216.00% $45b 72.00%
The High $45b 72.00% $75b 43.20%

alphabet-google-debt-issuance

Mischler Financial was happy to have been named an active Co-Manager for Alphabet Inc. today, parent company of Google among others.  The Aa2/AA issuer priced a new $2b 10-year Senior Notes offering that started price evolution with IPTs in the +80 “area” before tightening 10 bps into +70a (+/-2) guidance after which it launched and priced at the tightest side orT+68.  For fair value I looked at the outstanding GOOGL 3.375% due 2/25/2024 that was G+61.  Applying 10 bps for the 8s/10s curve gets you to T+71 fair value versus today’s T+68 final pricing inferring a new issue concession of negative 3 bps.   The final order book was $3.5b for a bid-to-cover or oversubscription rate of 1.75-times. Bonds were seen T+67 bid or 1 bp tighter closing the session.

What’s more today’s new Alphabet 10-year represents the fourth lowest ever IG-rated Corporate coupon in debt capital markets history!

Here’s a look at the top 4 low “A”-rated coupons:

 

  • Walt Disney 1.85% due 7/30/2026
  • IBM Credit $1bn 1.875% due 8/01/2022
  • Colgate $500mm 1.95% due 2/01/2023
  • Alphabet Inc. $2bn 1.998% due 8/15/2026

 

Thank yous go out to Alphabet’s Treasury/Funding team and for today’s achievement and opportunity.
Have a great evening!
Ron

Below please find my synopsis of everything Syndicate and Secondary from today’s debt capital markets, including the investment grade corporate bond data drill down as seen from my seat here in Syndicate, Sales and DCM.

NICs, Bid-to-Covers, Tenors and Sizes

 

Here’s a review of this week’s key primary market driver averages for IG Corporates only through Monday’s session followed by the averages over the prior four weeks:

KEY IG CORPORATE
NEW ISSUE DRIVERS
MON.
8/01
AVERAGES
WEEK 7/25
AVERAGES
WEEK 7/18
AVERAGES
WEEK 7/11
AVERAGES
WEEK 7/04
New Issue Concessions 1.16 bps 1.23 bps 3.95 bps 0.82 bps 0.73 bps
Oversubscription Rates 2.48x 3.63x 3.42x 4.73x 3.82x
Tenors 15.70 yrs 13.45 yrs 7.95 yrs 9.58 yrs 9.72 yrs
Tranche Sizes $1,671mm $875mm $1,482mm $887mm $770mm

 

New Issues Priced

Today’s recap of visitors to our IG dollar Corporate and SSA DCM:

For ratings I use the better two of Moody’s, S&P or Fitch.

 

IG

Issuer Ratings Coupon Maturity Size IPTs GUIDANCE LAUNCH PRICED LEADS
Alphabet Inc. Aa2/AA 1.998% 8/15/2026 2,000 +80a +70a (+/-2) +68 +68 JPM/MS(a) + 4 (p)
ENAP Baa3/BBB- 3.75% 8/05/2026 700 +high 200s
(+287.5)
+250a (+/-10) +240 +240 CITI/JPM
Hershey Company A1/A 2.30% 8/15/2026 500 +90a +85a (+/-5) +80 +80 BAML/CITI/JPM/RBC
Hershey Company A1/A 3.375% 8/15/2046 300 +120a +110a (+/-5) +110 +110 BAML/CITI/JPM/RBC
International Paper Baa2/BBB 3.00% 2/15/2027 1,100 +175a +155a (+/-5) +150 +150 DB/JPM (a) + 8 (p)
International Paper Baa2/BBB 4.40% 8/15/2047 1,200 +235a +215a (+/-5) +210 +210 DB/JPM (a) + 8 (p)
Mattel Inc. Baa1/BBB+ 2.35% 8/15/2021 350 +mid-100s
(+150a)
+135a (+/-5) +130 +130 BAML/CITI/MS/WFS
National Grid
Keyspan Gas East Corp.
A2/A- 2.742% 8/15/2026 700 +125a +120 the # +120 +120 BNY/CITI/HSBC/MUFG/TD
National Grid
Massachusetts Electric Co.
A3/A- 2.304% 8/15/2046 500 +160a +175a (+/-5) +170 +170 BNY/CITI/HSBC/MUFG/TD
Rabobank UA/NY Aa2/A+ FRN 8/09/2019 400 3mL+equiv 3mL+equiv 3mL+51 3mL51 BAML/BARC/MS/UBS
Rabobank UA/NY Aa2/A+ 1.375% 8/09/2019 1,000 +80a +72a (+/-2) +70 +70 BAML/BARC/MS/UBS
Weingarten Realty Inv. Baa1/BBB 3.25% 8/15/2026 250 +212.5 +185a (+/-2) +183 +183 BAML/JPM/REG/USB

 

SSA

Issuer Ratings Coupon Maturity Size IPTs GUIDANCE LAUNCH PRICED LEADS
African Development Bank
(tap) New total: $1,250mm
Aaa/AAA 1.00% 5/19/2019 250 MS+2a MS+2 MS+2 +19.3 BNPP/RBC

 

Lipper Report/Fund Flows – Week ending July 27th     

 

  • For the week ended July 27th, Lipper U.S. Fund Flows reported an inflow of $1.475b into Corporate Investment Grade Funds (2016 YTD net inflow of $20.798b) and a net outflow of $175.430m into High Yield Funds – the second highest ever – (2016 YTD net inflow of $9.696b).
  • Over the same period, Lipper reported a net outflow of $15.422m from Loan Participation Funds (2016 YTD net outflow of $5.389b).
  • Emerging Market debt funds reported a net inflow of $1.382b (2016 YTD inflow of $3.717b).

 

IG Secondary Trading Lab

 

  • BAML’s IG Master Index was unchanged at +150.  +106 represents the post-Crisis low dating back to July 2007.
  • Standard & Poor’s Global Fixed Income Research widened 6 bps to +202 versus +196.  The +140 reached on July 30th 2014 represents the post-Crisis low.
  • Investment grade corporate bond trading posted a final Trace count of $13.9b on Friday versus $14.5b Thursday and $11.5b the previous Friday.

 

New Issue Volume

 

Index Open Current Change
IG26 75.231 76.833 1.602
HV26 202.90 206.915 4.015
VIX 12.44 13.37 0.93
S&P 2,170 2,157 <13>
DOW 18,404 18,313 <91>
 

USD

 

IG Corporates

 

USD

 

Total IG (+ SSA)

DAY: $9.00 bn DAY: $9.25 bn
WTD: $32.40 bn WTD: $32.65 bn
MTD: $32.40 bn MTD: $32.65 bn
YTD: $843.591 bn YTD: $1,077.377 bn

 

Economic Data Releases

 

TODAY’S ECONOMIC DATA PERIOD SURVEYED ESTIMATES ACTUAL NUMBER PRIOR NUMBER PRIOR REVISED
Personal Income June 0.3% 0.2% 0.2% —-
Personal Spending June 0.3% 0.4% 0.4% —-
Real Personal Spending June 0.2% 0.3% 0.3% 0.2%
PCE Deflator MoM June 0.2% 0.1% 0.2% —-
PCE Deflator YoY June 0.9% 0.9% 0.9% —-
PCE Core MoM June 0.1% 0.1% 0.2% —-
PCE Core YoY June 1.6% 1.6% 1.6% —-
ISM New York July —- 60.7 45.4 —-
Wards Domestic Vehicle Sales July 13.06m 13.77m 12.76m —-
Wards Total Vehicle Sales July 17.30m 17.77m 16.61m —-

 

Rates Trading Lab

 

Neutral day for TYU6s Monday with the flat Value Area.  Larger technicals remain constructive (see the chart in MP package and the Bull Trend Channel ) — note though,  this situation is highly dependent on the major 132-17 Support remaining intact.   The 132-17 level was Friday’s GDP launch level that started a huge 9-tic Buying Tail, it also sits near the lower boundary of the just mentioned Bull Trend Channel; a break here would do technical damage, and it would signify a loss of upside momentum.

-Steven Muchnikoff

 

UST Resistance/Support Table

 

CT3 CT5 CT7 CT10 CT30
RESISTANCE LEVEL 100-00+ 100-182 99-24 101-15 106-30
RESISTANCE LEVEL 99-31 100-16 99-21 101-10+ 106-08
RESISTANCE LEVEL 99-296 100-102 99-13+ 101-00 105-12
         
SUPPORT LEVEL 99-26 100-04 99-05 100-20+ 104-01
SUPPORT LEVEL 99-246 99-306 98-29+ 100-10+ 103-20
SUPPORT LEVEL 99-222 99-266 98-24+ 100-03 102-31

 

Tomorrow’s Calendar

 

  • S. Data: Jun PI/PS/PCE, Jul NY ISM, Aug IBD-TIPP, Jul Vehicles
  • Supply: Nothing Scheduled
  • Events: Nothing Scheduled
  • Speeches: Nothing Scheduled

Above is the opening extract from Quigley’s Corner aka “QC”  Tuesday Aug 2 2016 Edition distributed via email to clients of Mischler Financial, the investment industry’s oldest and largest minority broker-dealer owned and operated by Service-Disabled Veterans.

Cited by Wall Street Letter in each of 2014, 2015 and 2016 for “Best Research / Broker-Dealer, the QC observations is one of three distinctive research content pieces produced by Mischler Financial Group. The QC is a daily synopsis of everything Syndicate and Secondary as seen from the perch of our fixed income trading and debt capital markets desk and includes a comprehensive “deep dive” with optics on the day’s investment grade corporate bond new issuance and market data encompassing among other items, comparables, investment grade credit spreads, new issue activity, secondary market most active issues, and upcoming pipeline.

To receive Quigley’s Corner, please contact Ron Quigley, Managing Director and Head of Fixed Income Syndicate via email: rquigley@mischlerfinancial.com or via phone.

*Sources: Bank of America/Merrill Lynch, Bloomberg, Bond Radar, Dow Jones Newswire, IFR, Informa Global Markets, Internal Mischler, LCDNews, Market News International, Prospect News, Standard & Poor’s Ratings Services, Stone & McCarthy Research, Thomson Reuters and of course, a career of sources, contacts, movers and shakers from syndicate desks to accounts; from issuers to originators; from academicians to heads of research, and a host of financial journalists, et al.

Mischler Financial Group’s “U.S. Syndicate Closing Commentary”  is produced weekly by Mischler Financial Group. No part of this document may be reproduced in any manner without the permission of Mischler Financial Group. Although the statements of fact have been obtained from and are based upon sources Mischler Financial Group believes reliable, we do not guarantee their accuracy, and any such information may be incomplete.  All opinions and estimates included in this report are subject to change without notice.  This report is for informational purposes and is not intended as an offer or solicitation with respect to the purchase or sale of any security.   Mischler Financial Group, its affiliates and their respective officers, directors, partners and employees, including persons involved in the preparation of this report, may from time to time maintain a long or short position in, or purchase or sell a position in, hold or act as market-makers or advisors or brokers in relation to the securities (or related securities, financial products, options, warrants, rights, or derivatives), of companies mentioned in this report or be represented on the board of such companies. Neither Mischler Financial Group nor any officer or employee of Mischler Financial Group or any affiliate thereof accepts any liability whatsoever for any direct, indirect or consequential damages or losses arising from any use of this report or its contents.  “Mischler Financial” Group and the Mischler Financial Group