BAML Reduces Debt Offering: No Need for FRN Tranche!
November 21, 2016   //   by Mischler MarCom   //   Debt Market Commentary  

Quigley’s Corner 11.21.16-BAML Cuts Back on Debt Offering; Deal pared to $2b 

 

Investment Grade New Issue Re-Cap 

Global Market Recap

IG Primary & Secondary Market Talking Points

Bank of America $2 11NC10 Deal Dashboard

NICs, Bid-to-Covers, Tenors, Sizes and Average Spread Compression from IPTs thru Launches

New Issues Priced

Indexes and New Issue Volume

Lipper Report/Fund Flows – Week ending November 16th   

IG Credit Spreads (by Rating/Industry

New Issue Pipeline

M&A Pipeline

Economic Data Releases

Rates Trading Lab

Today’s session saw 5 IG Corporate issuers price 7 tranches between them, including a $500mm $25 PerpNC5 preferred from Capital One Financial Corp. totaling $6.50b thereby taking care of 80% of this week’s syndicate midpoint average forecast calling for $8.11b.  We’ve now achieved 70% of the November syndicate midpoint estimate or $64.51b vs. $92.11b.

Global Market Recap

 

  • U.S. Treasuries – 2yr supply weighed on the front end of the curve.
  • Overseas Bonds – JGB’s mixed and little changed. Europe unchanged to better. Peripheral’s mixed.
  • 3mth Libor – Set at its highest yield (0.9193%) since May 2009.
  • Stocks – S&P, Dow & NASDAQ all traded at their all-time highs today.
  • Overseas Stocks – Europe more green than red. Japan and China also closed higher.
  • Economic – U.S., Europe & China not a factor. Japan exports and imports were weak.
  • Currencies – USD lost ground vs. 4 of the Big 5 but traded better during NY hours.
  • Commodities – Big day for the CRB and crude oil.
  • CDX IG: -1.20 to 75.59
  • CDX HY: -8.52 to 407.92
  • CDX EM: -6.53 to 271.85

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

-Tony Farren

 

IG Primary & Secondary Market Talking Points

 

  • Bank of America dropped the FRN tranche from today’s initially announced 11NC10 FXD/FRN having found sufficient funding in the fixed tranche that launched and priced $2b at the tightest side of +190a (+/-5) guidance or +185.
  • The average spread compression from IPTs thru the launch/final pricing of today’s 6 IG Corporate-only new issues was <16.67> bps.
  • The average spread compression from IPTs thru the launch/final pricing of today’s 7 IG Corporate new issues including Capital One’s $25 par Pfd, was <16.07> bps.
  • BAML’s IG Master Index widened 1 bp to +136 vs. at +135.  +106 represents the post-Crisis low dating back to July 2007.
  • Bloomberg/Barclays US IG Corporate Bond Index OAS widened 1 bp to +130 vs. +129.  The “LUACOAS” wide since 2012 is +215. The tight is +135.
  • Standard & Poor’s Investment Grade Composite Spread was unchanged at +179  The +140 reached on July 30th 2014 represents the post-Crisis low.
  • Investment grade corporate bond trading posted a final Trace count of $15.7b on Friday versus $20.1b Thursday and $19.8b the previous Friday.

 

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

 

IG Corporate New Issuance This Week
11/21-11/25
vs. Current
WTD – $6.50b
November 2016 vs. Current
MTD – $64.511b
Low-End Avg. $7.15b 90.91% $90.70b 71.13%
Midpoint Avg. $8.11b 80.15% $92.11b 70.04%
High-End Avg. $9.07b 71.66% $93.52b 68.98%
The Low $1b 650.00% $71b 90.86%
The High $15b 43.33% $110b 58.65%

 

Bank of America $2 11NC10 Deal Dashboard

 

BAC Issue IPTs GUIDANCE LAUNCH PRICED Spread
Compression
NICs
(bps)
Trading at
the Break
+/-
(bps)
11NC10 +205a +190a (+/-5) +185 +185 <20>  bps N/A 183/185 0/flat

 

The comparable used for today’s relative value is the outstanding BAC 4.45% due 3/2026 bullet Subordinated Notes that were G+175 bid pre-announcement this morning.  Adding in a dime or 10 bps for the call optionality takes fair value to T+185 which is where today’s deal priced flat or with no concession.

 

………and here’s a look at final book sizes and oversubscription rates:

 

BAC  Issue Tranche Size Final Book
Size
Bid-to-Cover
Rate
11NC10 $2b $5.7b 2.85x

 

Final Pricing – Bank of America (NYSE:BAC)
BAC $2b 4.183% due 11/25/2027 NC10 @ $100.00 to yield 4.183% or T+185

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 and Head of Fixed Income S

 

NICs, Bid-to-Covers, Tenors, Sizes and Average Spread Compression from IPTs thru Launches

 

…..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:

KEY IG CORPORATE
NEW ISSUE DRIVERS
MON.
11/14
TUES.
11/15
WED.
11/16
TH.
11/17
FRI.
11/18
AVERAGES
WEEK 11/14
AVERAGES
WEEK 11/07
AVERAGES
WEEK 10/31
AVERAGES
WEEK 10/24
New Issue Concessions 2.85 bps 2.79 bps 3.45 bps 5.33 bps N/A 3.62 bps <3.60> bps <0.87> bps <0.51> bps
Oversubscription Rates 2.38x 3.23x 3.01x 2.66x N/A 2.78x 4.26x 3.32x 2.61x
Tenors 11.05 yrs 10.74 yrs 9.57 yrs 10.56 yrs N/A 11.28 yrs 13.31 yrs 11.33 yrs 7.77 yrs
Tranche Sizes $991mm $707mm $704mm $1,839mm N/A $1,039mm $692mm $491mm $818mm
Avg. Spd. Compression
IPTs to Launch
<14.5> bps <21.57> bps <18.35> bps <17.11> bps N/A <17.69> bps <22.96> bps <17.87> yrs <17.42> bps

 

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
Bank of America Baa3/A- 4.183% 11/25/2027 2,000 +205a +190a (+/-5) +185 +185 BAML-sole
BP Capital Markets PLC A2/A- 3.216% 11/28/2023 1,200 +120-125 +115a (+/-5) +110 +110 BAML/CITI/BNPP/CS/GS
MUFG
BP Capital Markets PLC A2/A- 3.723% 11/28/2028 800 +145-150 +145a (+/-5) +140 +140 BAML/CITI/BNPP/CS/GS
MUFG
Capital One Finc’l. Corp. Baa3/BB 6.00% PerpNC5 500 RG: 6-6.125%
6.125%a
N/A 6.00% $25 Pfd MS(phys)BAML/JPM/UBS
WFS
Enbridge Inc Baa2/BBB+ 4.25% 12/01/2026 750 +225a +205a (+/-5) +200 +200 BARC/DB/MIZ/MUFG
Enbridge Inc. Baa2/BBB+ 5.50% 12/01/2046 750 +275a +255a (+/-5) +250 +250 BARTC/DB/MIZ/MUFG
New York St. Electric & Gas A3/A- 3.25% 12/01/2026 500 +110a N/A +100 +100 BAML/MIZ/MUFG/RBC

Indexes and New Issue Volume

 

Index Open Current Change  
LUACOAS 1.30 1.30 0  
IG27 76.786 75.733 <1.053>
HV27 159.565 157.265 <2.30>
VIX 12.85 12.42 <0.43>  
S&P 2,181 2,198 17
DOW 18,867 18,956 89  
 

USD

 

IG Corporates

 

USD

 

Total IG (+SSA)

DAY: $6.50 bn DAY: $6.50 bn
WTD: $6.50 bn WTD: $6.50 bn
MTD: $64.511 bn MTD: $65.611 bn
YTD: $1,233.292 bn YTD: $1,564.276 bn

 

Lipper Report/Fund Flows – Week ending November 16th   

     

  • For the week ended November 16th, Lipper U.S. Fund Flows reported an inflow of $470.0m into Corporate Investment Grade Funds (2016 YTD net inflow of $41.437b) and a net outflow of $2.284b from High Yield Funds (2016 YTD net inflow of $4.001b).
  • Over the same period, Lipper reported a net inflow of $666.3m into Loan Participation Funds (2016 YTD net outflow of $896.7m).
  • Emerging Market debt funds reported a net outflow of $1.058b (2016 YTD inflow of $6.464b).

 

IG Credit Spreads by Rating

 

Above is the opening extract from Quigley’s Corner aka “QC” Wednesday November 16, 2016 edition 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.

BAML Reduces Debt Offering: No Need for FRN Tranche!