IG Corporate Debt: PepsiCo-Good AND Better For You; Mischler Comment
October 4, 2016   //   by Mischler MarCom   //   Debt Market Commentary, Recent Deals  

Quigley’s Corner 10.03.16- PepsiCo: Good and Better For You


Investment Grade New Issue Re-Cap – New Records, Negative Rates and a Blockbuster from Pepsi

Global Market Recap

IG Primary & Secondary Market Talking Points

The PepsiCo Inc. $4.5b 6-part Deal Dashboard

A Look at Socially-Responsible PepsiCo Inc.: Good and Better For You.

New Issues Priced

Indexes and New Issue Volume

Lipper Report/Fund Flows – Week ending September 28th

IG Credit Spreads (by Rating & Industry)

New Issue Pipeline

M&A Pipeline

Economic Data Releases

Rates Trading Lab

Tomorrow’s Calendar


In the limited time I had today to thumb through a very interesting Q3 report from friends and financial news reporters John Balassi and Michael Gambale of Thomson Reuters fame, the multi-billion dollar multinational mass media and information firm, I was taken by a couple talking points about Global New Issuance that you should find noteworthy:

o   Global Debt Capital Markets activity is up 27% to $5.5 trillion through Q3.

o   Q3 U.S. Investment Grade Corporate Debt is 9%

o   Global High Yield is down 21%

o   Government and Agency offerings rose 76%

o   Emerging Markets Debt is down 23%

o   Overall Debt Underwriting fees declined 9%

However, what’s more incredible is that we are witnessing an unprecedented surge in bonds the world over that are guaranteed to lose investors’ money if held to maturity given their negative yields.  In an article written by Bloomberg Editorial’s Phil Kuntz, the total face value of negative yielding corporate and sovereign debt in the “Bloomberg Barclays Global Aggregate Index of investment grade bonds jumped to $11.6 trillion as of September 30th, up 6.1% from the prior month……….less than one seventh of the world’s negative yielding debt is owed by businesses. Finance companies issued……almost 80% ….totaling $1.3 trillion!” The number includes debt one year and out.  Corporations account for 15% of the world’s negative debt while 85% is derived from governments.  That’s not good news folks.

This pie chart displays the drama in those numbers:

mischler corporate debt comment


So, what’s this got to with new issuance?  Everything because the place investors go to fill their portfolios is the safe haven of better rated IG corporate debt right here is our U.S. dollar-denominated primary markets.  In what continues to be a historically low rate environment, corporations have a wonderful window of opportunity before them to secure favorable funding for M&A, expansions, lower refi levels, you name.  What’s more, investors are attracted to the relative safe haven of these credits that do, in fact offer the best balance in our world in better managing risk exposure while securing a decent return, comparatively speaking.


That’s our segue into this evening’s IG DCM that owned the new issues leaderboards as 3 corporate issuers priced 11 tranches between them totaling $7.15b.  But the biggest deal of the day belonged to PepsiCo’s (NYSE:PEP) $4.5b 6-part Senior Notes transaction comprised of 3- and 5-year FXD/FRNs, 10s and 30s.  It also happens to be the Deal-of-the-Day as Mischler Financial, our nation’s oldest Service Disabled veteran broker dealer was more than honored to be named an active 1.00% Co-Manager and was showcased as one of two diversity co’s on today’s deal.  So, I invite you to join me in the relative value story of this deal and PepsiCo’s Diversity & Inclusion initiatives.

But first, here’s the global re-cap and a look at all today’s primary market talking points and issuance!


Global Market Recap


o   U.S. Treasuries – Better than expected ISM manufacturing hits the front end.

o   Stocks – U.S. stocks red (3:30pm). FTSE, Nikkei & HS rallied. Europe mostly red.

o   Economic – ISM manufacturing moved back over 50. Good news for hawks on the FOMC.

o   Currencies – USD outperformed the Euro, Pound & Yen. Pound had a very bad day.

o   Commodities – Crude oil closed higher while gold, copper, silver & wheat lost.

o   CDX IG: +0.50 to 75.63

o   CDX HY: +2.30 to 403.45

o   CDX EM: -0.65 to 233.06

*CDX levels are as of 3:30PM ET today.

-Tony Farren


IG Primary & Secondary Market Talking Points


  • The average spread compression from IPTs thru the launch/final pricing of today’s 11 IG Corporate-only new issues was 18.18 bps.
  • BAML’s IG Master Index was unchanged at +143.  +106 represents the post-Crisis low dating back to July 2007.
  • Bloomberg/Barclays US IG Corporate Bond Index OAS was unchanged at +138.  The “LUACOAS” wide since 2012 is +215. The tight is +135.
  • Standard & Poor’s Global Fixed Income Research was unchanged at +189.  The +140 reached on July 30th 2014 represents the post-Crisis low.
  • Investment grade corporate bond trading posted a final Trace count of $15.3b on Friday versus $15.8b Thursday and $13.3b the previous Thursday.
  • The 10-DMA stands at $16.2b.


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


IG Corporate New Issuance This Week
vs. Current
WTD – $7.15b
October 2016 vs. Current
MTD – $7.15b
Low-End Avg. $17.35b 41.21% $87.83b 8.14%
Midpoint Avg. $18.54b 38.57% $88.59b 8.07%
High-End Avg. $19.74b 36.22% $89.35b 8.00%
The Low $15b 47.67% $75b 9.53%
The High $26b 27.50% $125b 5.72%


The PepsiCo Inc. $4.5b 6-part Deal Dashboard


Comparable Bid
Trading at
the Break
3yr FXD +55-60 +50a (+/-5) +45 +45 <12.5> PEP 1.50% ’19 T+35 (G+42)
Curve adjusted = flat
0 44/43 <1>
3yr FRN 3mL+equiv 3mL+equiv 3mL+27 3mL+27 <12.5> PEP 1.50% ’19 T+35 (G+42)
Curve adjusted = flat
0 3mL+26/24 <1>
5yr FXD +65-70 +60a (+/-5) +55 +55 <12.5> PEP 3.00% ’21 T+54 (G+55) 0 54/53 <1>
5yr FRN 3mL+equiv 3mL+equiv 3mL+53 3mL+53 <12.5> PEP 3.00% ’21 T+54 (G+55) 0 3mL+52/51 <1>
10yr +90-95 +80a (+/-5) +75 +75 <17.5> PEP 2.85% ’26 (T+67/G+71) +4 74/73 <1>
30yr +130-135 +120a (+/-5) +115 +115 <17.5> PEP 4.45% ’46 (T+112) +3 114/ <1>


………and here’s a look at final book sizes and over-subscription rates:


ETR Issue Tranche Size Final Book
3yr FXD 250mm 450m 1.8x
3yr FRN 750mm 1,950m 2.6x
5yr FXD 250mm 600mm 2.4x
5yr FRN 750mm 2,200m 2.93x
10yr 1,000m 3,250m 3.25x
30yr 1,500m 4mm 2.67x


Thank You’s Galore


Let’s see if you’ve been reading the “QC” with a simple test question – “Where does D&I start in corporate America?”  Correct good job!  The answer is it starts from the top down.  At PepsiCo, the world’s second largest food and beverage business that means India-born and naturalized American Chairperson and Chief Executive Officer Indra Nooyi.  It is from her office that Pepsi’s D&I initiative is carried, embraced and filtered through what is among the best-in-class Diversity and Inclusion mandates that we saw in action today, as evidenced by Mischler’s opportunity to demonstrate our capital markets capabilities and to work with PepsiCo’s Treasury/Funding Department.

Mischler sends off its five-star salute this evening to all of you with thanks not only for the privilege to be involved in your transaction, but for the active roll you enabled and supported us to participate with.  As a 1.00% active Co-Manager we were able to introduce nearly one quarter of a billion dollars in volume and 80 individual orders to Pepsi’s six-part order books.  By allocating Team Mischler we then see return business from our middle markets distribution network that executes Corporate, Agency, ABS/MBS, Rates and Municipal business among others.  The sustainable growth trajectory we are on, in turn, helps fund our “giving back and pay forward set asides”  so that we can apply our shared ethos to give back to our Veteran community.  This is a circular process, and it’s how we grow our business while giving back to veteran and service disabled veteran organizations – the root of our diversity certification.  So, thank you all at Team Pepsi from all of us here at Team Mischler for being great stewards for D&I and Veteran causes.

PepsiCo Inc debtA Look at Socially Responsible PepsiCo Inc.: Good and Better For You

But let me tell you a bit more about Pepsi D&I leadership roles. Pepsi’s Supplier Diversity mandate began over 30 years ago at the company and its annual spend is approximately $1.3 billion!  Also, internally, PepsiCo recognizes individuals within the company who are active supporters of diversity and inclusion in the workplace.  Two such honors are the Harvey C. Russell Inclusion Award to honor employees for their outstanding achievements in diversity and inclusion.  Most recently, 76 associates from Pepsi’s Global business were awarded.  Additionally, Pepsi offers the Global Steve Reinemund Diversity and Inclusion Leadership Award recognizing senior Pepsi staff members who model exemplary leadership and a commitment to diversity and inclusion.

Which brings me to PepsiCo’s incredible commitment to hire U.S. military veterans, an initiative that earned it a top 25 ranking for the second consecutive year in the G.I. Jobs ranking of Top 100 Military Friendly Employers in 2013.  Pepsi is the lone food and beverage company in the top 50 companies in that category.  Also in 2013, Pepsi’s online jobs clearinghouse named, Bright.com, secured the top ranking for Pepsi among Fortune 50 companies in “most veterans hired” as a percentage of its workforce.  How awesome is that folks?  For four consecutive years Pepsi’s recycling program provided $1.5million to support Entrepreneurship Bootcamp for Veterans or “EBV” that helps veterans build their own businesses to pursue their dreams. Those are just some of the ways Pepsi is giving back.

They gave the nation’s oldest SDVBE a chance again today to prove our muster and so, it’s our job and expectation to deliver the goods and in addition to extol the virtues and tell the stories of what Pepsi does to make this world a better, more socially responsible place; Pepsi is Good and Better For You!

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.

Have a great evening!
Ron Quigley, Managing Director, Head of Fixed Income Syndicate


NICs, Bid-to-Covers, Tenors and Sizes


…..and here’s another look at last week’s day-by-day re-cap of key primary market driver averages for IG Corporates only followed by the prior four week’s averages:

WEEK 9/26
WEEK 9/19
WEEK 9/12
WEEK 9/05
New Issue Concessions 2.50 bps N/A 5.69 bps 0 bps/flat N/A 2.71 bps 0.69 bps 4.66 bps 1.30 bps
Oversubscription Rates 3.71x N/.A 2.66x 4.12x N/A 3.52x 3.23x 3.47x 3.23x
Tenors 13.12 yrs 30 yrs 7.71 yrs 7.29 yrs N/A 10.51 yrs 9.36 yrs 11.28 yrs 9.42 yrs
Tranche Sizes $509mm $150mm $862mm $681mm N/A $646mm $964mm $710mm $719mm


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.



Issuer Ratings Coupon Maturity Size IPTs GUIDANCE LAUNCH PRICED LEADS
General Motors Finc’l. Co. BBB-/BBB- FRN 10/04/2019 250 3mL+equiv 3mL+equiv 3mL+127 3mL+127 BAML/BNPP/CITI/LLOY/MIZ
General Motors Finc’l. Co. BBB-/BBB- 2.35% 10/04/2019 750 +155a +145 the # +145 +145 BAML/BNPP/CITI/LLOY/MIZ
General Motors Finc’l. Co. BBB-/BBB- 4.00% 10/06/2026 750 +260a +245a (+/-5) +240 +240 BAML/BNPP/CITI/LLOY/MIZ
PepsiCo. Inc. A1/A FRN 10/04/2019 250 3mL+equiv 3mL+equiv 3mL+27 3mL+27 BAML/CITI/GS/MIZ
PepsiCo. Inc. A1/A 1.35% 10/04/2019 750 +55-60 +50a (+/-5) +45 +45 BAML/CITI/GS/MIZ
PepsiCo. Inc. A1/A FRN 10/06/2021 250 3mL+equiv 3mL+equiv 3mL+53 3mL+53 BAML/CITI/GS/MIZ
PepsiCo. Inc. A1/A 1.70% 10/06/2021 750 +65-70 +60a (+/-5) +55 +55 BAML/CITI/GS/MIZ
PepsiCo. Inc. A1/A 2.375% 10/06/2026 1,000 +90-95 +80a (+/-5) +75 +75 BAML/CITI/GS/MIZ
PepsiCo. Inc. A1/A 3.45% 10/06/2046 1,500 +130-135 +120a (+/-5) +115 +115 BAML/CITI/GS/MIZ
Xylem Inc. Baa2/BBB 3.25% 11/01/2026 500 +200a +170a (+/-5) +165 +165 CITI/WFS(a) JPM (p)
Xylem Inc. Baa2/BBB 4.375% 11/01/2046 400 +250a +215a (+/-5) +210 +210 CITI/WFS(a) JPM (p)


Indexes and New Issue Volume


Index Open Current Change
LUACOAS 1.38 1.38 0
IG27 75.132 75.232 0.10
HV27 176.145 175.005 <1.14>
VIX 13.29 13.57 0.28
S&P 2,168 2,161 <7>
DOW 18,308 18,253 <55>



IG Corporates




Total IG (+ SSA)

DAY: $7.15 bn DAY: $7.15 bn
WTD: $7.15 bn WTD: $7.15 bn
MTD: $7.15 bn MTD: $7.15 bn
YTD: $1,081.886 bn YTD: $1,366.37 bn


Lipper Report/Fund Flows – Week ending September 28th


  • For the week ended September 28th, Lipper U.S. Fund Flows reported an inflow of $2.334b into Corporate Investment Grade Funds (2016 YTD net inflow of $37.925b) and a net inflow of $2.011b into High Yield Funds (2016 YTD net inflow of $9.444b).
  • Over the same period, Lipper reported a net inflow of $480.7m into Loan Participation Funds (2016 YTD net outflow of $3.319b).
  • Emerging Market debt funds reported a net inflow of $209.7m (2016 YTD inflow of $6.549b).


IG Credit Spreads by Rating

The 10-day IG spread performance vs. the T10 across the ratings spectrum and how IG compared versus high yield:

Spreads across the four IG asset classes are an average 33.25 bps wider versus their post-Crisis lows!


ASSET CLASS 9/30 9/29 9/28 9/27 9/26 9/23 9/22 9/21 9/20 9/19 1-Day Change 10-Day Trend PC
IG Avg. 143 143 143 143 142 141 141 142 142 142 0 +1 106
“AAA” 84 84 84 84 83 82 82 83 83 83 0 +1 50
“AA” 87 87 87 86 86 85 85 86 85 85 0 +2 63
“A” 113 114 114 114 113 112 112 113 113 113 <1> 0 81
“BBB” 185 185 185 185 184 183 183 185 184 185 0 0 142
IG vs. HY 354 366 371 375 374 369 368 380 382 383 <12> <29> 228

IG Credit Spreads by Industry

…….and a snapshot of the major investment grade sector credit spreads for the past ten sessions:

Spreads across the major industry sectors are an average 38.95 bps wider versus their post-Crisis lows!


INDUSTRY 9/30 9/29 9/28 9/27 9/26 9/23 9/22 9/21 9/20 9/19 1-Day Change 10-Day Trend PC
Automotive 122 121 121 121 119 119 119 121 120 120 +1 +2 67
Banking 133 136 134 134 131 131 131 133 132 133 <3> 0 98
Basic Industry 186 187 187 187 187 186 186 188 189 189 <1> <3> 143
Cap Goods 106 107 105 106 105 104 104 104 104 104 <1> +2 84
Cons. Prod. 111 111 111 112 110 110 110 111 111 111 0 0 85
Energy 191 191 192 193 193 191 191 192 192 192 0 <1> 133
Financials 169 167 167 167 166 165 165 167 167 167 +2 +2 97
Healthcare 120 119 119 119 118 118 118 119 118 118 +1 +2 83
Industrials 144 144 144 145 143 143 143 144 144 144 0 0 109
Insurance 162 163 163 163 163 162 162 163 162 163 <1> <1> 120
Leisure 140 141 140 141 141 141 142 142 142 142 <1> <2> 115
Media 165 164 165 165 164 164 164 166 165 165 +1 0 113
Real Estate 153 151 151 151 151 151 151 151 151 150 +2 +3 112
Retail 119 119 119 119 118 118 119 120 119 120 0 <1> 92
Services 133 136 135 135 134 134 135 135 135 135 <3> <2> 120
Technology 121 124 124 124 123 123 123 124 124 124 <3> <3> 76
Telecom 163 165 165 165 162 162 162 164 164 164 <2> <1> 122
Transportation 141 138 138 139 139 138 139 139 139 139 +3 +2 109
Utility 141 142 141 141 140 140 140 141 140 141 <1> 0 104


Above is the opening extract from Quigley’s Corner aka “QC” Monday October 3 2016 distributed via email to institutional investment managers and Fortune Treasury clients of Mischler Financial Group, 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 debt new issuance and secondary 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, S, 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. Article Quigley’s Corner 10.03.16- PepsiCo: Good and Better For You