Mischler IG Debt Market Comment: Knowing Past for the Future; Eye on AEP
January 28, 2017   //   by Mischler MarCom   //   Debt Market Commentary  

Quigley’s Corner 01.27.17 – Investment Grade Corporate Debt Outlook; Eye on AEP


Investment Grade New Issue Re-Cap 

Utility Update re: American Electric Power (NYSE:AEP)

IG Primary & Secondary Market Talking Points

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

The Best and the Brightest –  Fixed Income Syndicate Forecasts and Sound Bites for Next Week 

Syndicate IG Corporate-only Volume Estimates for Next Week and February

“Knowing the Past for the Future” – A Look at a Decade’s Worth of December IG Corporate and SSA Issuance

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

This Week’s IG New Issues and Where They’re Trading

Indexes and New Issue Volume

Lipper Report/Fund Flows – Week ending January 25th     

IG Credits by Rating

IG Credit Spreads by Industry

New Issue Pipeline

M&A Pipeline

Economic Data Releases

Rates Trading Lab

Tomorrow’s Calendar

It was a no-print Friday.  There were a couple filings for Seagate and McKesson, meaning they could be on the short-term horizon for issuance.  Blackouts may prevent a monster week next week, but I am hearing the week after next things should start to build up again for our IG Corporate primary markets (barring a black swan fly over!)
Let’s recap things: first up front and then it’s onto those people who pitch, price and print YOUR deals.  They’re all waiting for you to scroll down below and greet them. That’s right, Friday means it’s time for the “Best & and the Brightest” that syndicate has to offerThey’re all here again to share their numbers, ranges and thoughts on both next week AND February projected new issuance of U.S. investment grade corporate debt. So, pull up a chair, sit down, relax and allow me to inform you through the manifestation of their gracious time and patronage!
Utility Update re: American Electric Power

It’s been in my M&A Pipeline near page bottom of the “QC” every day now for over 4 months – “On Wednesday, September 14th, American Electric Power (“AEP) (Baa1/BBB+) agreed to sell four power plants in the Midwest for a total of $2.17b to a private equity firm created by Blackstone Group and ArcLight Capital Partners. AEP is divesting of many wholesale power markets focusing instead more on its regulated utility businesses.  The closing of the transaction is expected sometime in Q1 2017.”

Well, that was then and this is now.  AEP is expected to close that $2.17b sale “very soon.” On the heels of very strong 2016 earnings that saw EPS beat $3.94 vs. $3.81 estimates and $3.69 the prior year, combined with successful rate base investments and rate increases, AEP looks to be in a very strong position warranting recent S&P upgrades across its corporate structure while keeping them all on a “positive” credit watch. It’s a utility to watch folks.

IG Primary & Secondary Market Talking Points

  • Market tone was incredibly strong today. Taking a look at the secondary trading performance of this week’s IG and SSA new issues, of the 32 deals that printed, 28 tightened versus new issue pricing for a 50% improvement rate while 2 widened (6.25%) and 2 were flat (6.25%). It sets things up nicely for further issuance ahead!
  • For the week ended January 25th, Lipper U.S. Fund Flows reported an inflow of $1.589b into Corporate Investment Grade Funds (2016 YTD net inflow of $9.697b) and a net outflow of $532.417m from High Yield Funds (2016 YTD net outflow of $121.533m).
  • BAML’s IG Master Index tightened 1 bp to +126 vs. +127.  +106 represents the post-Crisis low dating back to July 2007.
  • Bloomberg/Barclays US IG Corporate Bond Index OAS was unchanged at +120.  The “LUACOAS” wide since 2012 is +215.  +120 is the new tight.
  • Standard & Poor’s Investment Grade Composite Spread was unchanged at +164.  The +140 reached on July 30th 2014 represents the post-Crisis low.
  • Investment grade corporate bond trading posted a final Trace count of $21.2b on Thursday versus $23.0b on Wednesday and $23.5b the previous Thursday.
  • The 10-DMA stands at $19.3b.


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


IG Corporate New Issuance This Week
vs. Current
WTD – $23.65b
January 2017
vs. Current
MTD – $140.383b
Low-End Avg. $19.09b 123.89% $107.87b 130.14%
Midpoint Avg. $20.46b 115.59% $108.41b 129.49%
High-End Avg. $21.83b 108.34% $108.96b 128.84%
The Low $15b 1157.67% $80b 175.48%
The High $26b 90.96% $145b 96.82%


The Best and the Brightest” –  Syndicate Forecasts and Sound Bites for Next Week

I am happy to announce that, once again, the “QC” received unanimous responses from the 23 syndicate desks surveyed in today’s Best & Brightest poll.  21 of those participants are among 2017’s YTD top 23 ranked syndicate desks according to today’s Bloomberg’s U.S. IG U.S. Investment Grade Corporate Bond underwriting league table.  In fact, 22 of today’s 23 participants finished in the top 25 of last year’s 2016 final IG Corporate Bloomberg league table.  The 2017 League table can be found on your terminals at “LEAG” + [GO] after which you select (US Investment Grade Corporates).  The participating desks represent 87.97% of all IG dollar-denominated new issue underwriting as of today’s table share percentage which simply means they’re the ones with visibility.  But it’s not only about their volume forecasts, it’s also about their comments!  This core syndicate group does it best; they know best; so they’re the ones you WANT and NEED to hear from.  It’s a great look at the week ahead.

*Please note that these are Investment Grade Corporates only. They do not include SSA issuance unless otherwise noted.

As always “thank you” to all the syndicate desks that participated in today’s survey.  I greatly appreciate your time to contribute and for making this edition of the “QC” among the most widely read! You are helping to promote Mischler’s value-added DCM proposition while adding readership to the “QC” that won Wall Street Letter’s Award as Best Broker Dealer Research in our financial services industry for the third consecutive year! That’s 2014, 2015 and 2016. 

We framed the following background info for our 23 fixed income syndicate peers throughout the top Wall Street banks…folks who are in the know..
Will January 2017 break the all-time monthly volume record?

  • WTD, we surpassed the syndicate midpoint average forecast by over 23% or $23.65b vs. $20.46b.
  • MTD we priced over 29% more than the January average forecast or $140.383b vs. $108.41b.
  • All-in YTD IG Corporate and SSA issuance stands at $195.133b making it the 2nd highest monthly volume of all-time. We have $18.267b to break the record set in May 2016 of $213.40b. Will we get there?

Here are this week’s five IG Corporate-only key primary market driver averages after the close of yesterday’s:

  • NICS:  1.13 bps
  • Oversubscription Rates: 3.29x
  • Tenors:  6.67 years
  • Tranche Sizes: $845mm
  • Spread Compression from IPTs to the Launch: <18.20> bps

Here’s how this week’s performance data compares against last week’s:

  • NICs tightened 2.29 bps to 1.13 bps vs. 3.42 bps last week.
  • Over subscription or bid-to-cover rates grew by 0.89x to 3.29x vs. 2.40x. 
  • Average tenors dramatically compressed by 5.33 years to 6.67 years vs. 12 years.
  • Tranche sizes reduced $278mm to $845mm vs. $1,123.
  • Spread compression from IPTs to the launch/final pricing of this week’s 28 IG Corporate-only new issues tightened by <3.51> bps to <18.20> vs. <14.69> bps.
  • Standard and Poor’s Investment Grade Composite Spreads tightened 1 bp to +164 vs. +165.
  • Week-on-week, BAML’s IG Master Index tightened 2 bps to +126 vs. +128. 
  • Spreads across the four IG asset classes tightened 1.50 bps to 19.00 vs. 20.50 bps as measured against their post-Crisis lows. 
  • The 19 major industry sectors tightened 0.95 bps to 24.00 vs. 24.95 bps also against their post-Crisis lows.

As more and more major corporations exit blackouts, we increase the chances of further issuance ahead.  Thus far in his first week as our new President, Donald Trump has been true to his word – he has disrupted D.C. (as well as airports) through an assortment of measures including but not limited to: (i) issuing an executive order to roll back Obamacare, (ii) froze new federal agency regulations for review, (iii) claims to be re-negotiating NAFTA,(iv) pulled the U.S. out of the TPP, (v) met or spoken with U.K., Canadian and Mexican leaders while encouraging U.S. companies to grow jobs in America by closing their foreign plants.  He has taken action on his campaign promise to build a wall along our southern border with Mexico and restricting immigration laws. Those latter steps have also created mass protests throughout the country and in many other countries. On Election Day November 8th, 2016 the DOW closed at 18,332.  Today the Dow sits at an all-time high of 20,100. That’s up 1,768 points or 9.64% making it the number one ranked Post-Election gain since 1900 eclipsing the 7.75% gain of Calvin Coolidge’s Presidency in the Roaring Twenties. Reminding those of us across the financial industry to advance the caveat: “Past performance is not to be considered an indication of future performance.”

The “Best and the Brightest” in Their Own Words

……..……and here are their formidable responses:

Above is the opening extract from Quigley’s Corner aka “QC”  Friday Jan 27, 2017 edition distributed via email to institutional investment managers and Fortune Treasury clients of Mischler Financial Group, the investment industry’s oldest 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.   Veteran-owned broker-dealer 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 IG Debt Market Comment: Knowing Past for the Future; Eye on AEP