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Quigley’s Corner Veterans Day: Good Day for Green Bonds & Diversity
November 2016      Debt Market Commentary   

Quigley’s Corner 11.10.16  Veterans Day Edition; Investment Grade Debt Market Pulses: Green Bonds + Diversity


Honoring Veterans Day

Investment Grade New Issue Re-Cap 

Reviewing This Week’s IG Primary Market Driver Averages by the Numbers

IG Primary & Secondary Market Talking Points

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

The Goldman Sachs Group, Inc. $2.75b 10NC9 Deal Dashboard

Southern Power Co. $1.3b 3-part 3s/5s/30s

J.P. Morgan Chase & Co. $1.10b 11NC10 Deal Dashboard

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

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 9th  

Investment Grade Credit Spreads

New Issue Pipeline

M&A Pipeline

Economic Data Releases

Rates Trading Lab

Tomorrow’s Calendar

 

mischler-veterans-day-debt-market-green-bonds-diversity

I have a lot for you here today – a tribute to our Vets on Veterans Day, the Global Market Recap, a Review of this Week’s Primary Market Driver Averages, IG Primary and Secondary Market Talking Points, The WTD and MTD Volume Tables and then Deal Dashboards for the three deals that Mischler was involved in today namely Goldman Sachs, Southern Power and J.P. Morgan Chase. Following that are today’s “Thank yous”, a drill down into the EEI’s Green panel discussion and of course the “Best and Brightest” numbers and thoughts for next week’s IG new issue volume.

Why is the “QC” so late tonight?  Because it was a VERY busy day today for your humble corner correspondent.  But rather than leave for the long weekend, I read the below and thought, “the veterans we celebrate tomorrow (today actually) are the ones who had it tough.”  Ours is a cakewalk compared to what the men and women in uniform do day in and day out – for all of us.  That was about all I needed to read to realize, the “QC” gets out in its entirety tonight with nothing missing.  No short cuts, no skipping sections. If people read it great. If they don’t, well at least I left it on the floor and finished the job the way you all expect it be finished – complete.

It’s more than the trade, it’s more than the new investor, it’s more than the coverage and the capital.  This firm is owned by Service Disabled Veterans.  Metal joints, limps, shrapnel stuck in their bodies, scars where you know something near fatal happened.  All humble all dedicated and all fiercely patriotic.  It makes decisions like sticking around to finish this job pretty damned easy and I do it because they earned the certification that gives all of us here at team Mischler the opportunity to do what we do.    It’s a no brainer.  1:00AM on Veterans Day.  That’s my small give back and tribute to the great team of veterans who run the nation’s oldest SDVBE.  Thank each and every one of you from the top, down.

Investment Grade New Issue Re-Cap 

 

6 IG Corporate issuers priced 11 tranches between them totaling $8.05b and taking the WTD total to 91% of this week’s syndicate midpoint average forecast or $8.995b vs. $9.83b.

Global Market Recap

  • S. Treasuries – JGB’s, Bunds, Gilts, etc., are having a rough go with President-elect Trump.
  • 3mth Libor – Set at the highest yield (0.90206%) since May 2009.
  • Stocks – Big rally for the Dow & a new all-time high. NASDAQ was red.
  • Economic – U.S. claims data was solid. Weaker data in France & Italy.
  • Currencies – USD outperformed 4 of the Big 5 but the Pound was the star today.
  • Commodities – Copper with another strong bid. Crude oil & gold closed red.
  • CDX IG: -0.28 to 74.18
  • CDX HY: +6.34 to 411.11
  • CDX EM: +29.47 to 272.20

CDX spreads mover wider after 3pm

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

-Tony Farren

 

Reviewing This Week’s IG Primary Market Driver Averages by the Numbers

Here are this week’s five IG Corporate-only key primary market driver averages:

 

  • NICS:  <3.60> bps
  • Oversubscription Rates: 4.26x
  • Tenors:  13.31 years
  • Tranche Sizes: $692mm
  • Spread Compression from IPTs to the Launch: <22.96> bps

 

Versus last Friday’s key primary market driver averages, NICs tightened a hefty <2.68 bps> to an average <3.60> bps vs. <0.92> bps while over subscription or bid-to-cover rates grew 0.93x to 4.26x vs. 3.33x last week.  Average tenors pushed way out 1.98 years to 13.31 yrs vs. 11.33 yrs while tranche sizes grew by $223mm to $692mm vs. $469mm..

Standard and Poor’s Investment Grade Composite Spreads tightened 2 bps to +184 versus last Friday’s +186.

For the week ended November 9th, Lipper U.S. Fund Flows reported an inflow of $675.4m into Corporate Investment Grade Funds (2016 YTD net inflow of $40.967b) and a net outflow of $668.6m from High Yield Funds (2016 YTD net inflow of $6.285b).

Week-on-week, BAML’s IG Master Index tightened a dramatic 5 bps to +136 vs. last Friday’s +141 close.  Spreads across the four IG asset classes also tightened a dramatic 5.25 bps to  bps to 26.75 vs. 32 as measured against their post-Crisis lows.  Looking at the 19 major industry sectors, spreads tightened 4.05 bps to 33.37 vs. 37.42 also against their post-Crisis lows.

IG Primary & Secondary Market Talking Points

 

  • Taking a look at the secondary trading performance of this week’s IG and SSA new issues, of the 13 deals that printed, 11 tightened versus NIP for a 50% improvement rate while with 2 trading flat (15.50%).
  • For the week ended November 9th, Lipper U.S. Fund Flows reported an inflow of $675.4m into Corporate Investment Grade Funds (2016 YTD net inflow of $40.967b) and a net outflow of $668.6m from High Yield Funds (2016 YTD net inflow of $6.285b).
  • BAML’s IG Master Index tightened 1 bp to +136 vs. +137.  +106 represents the post-Crisis low dating back to July 2007.
  • Bloomberg/Barclays US IG Corporate Bond Index OAS tightened 2 bps to 1.30 vs. 1.32.  The “LUACOAS” wide since 2012 is +215. The tight is +135.
  • Standard & Poor’s Investment Grade Composite Spread was unchanged at +184.  The +140 reached on July 30th 2014 represents the post-Crisis low.
  • Investment grade corporate bond trading posted a final Trace count of $20.2b on Wednesday versus $15b Tuesday and $17.5b the previous Wednesday.
  • The 10-DMA stands at $16.6b.

 

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

 

IG Corporate New Issuance This Week
11/07-11/11
vs. Current
WTD – 8.995b
November 2016 vs. Current
MTD – $16.461b
Low-End Avg. $8.09b 111.19% $90.70b 18.15%
Midpoint Avg. $9.83b 91.51% $92.11b 17.87%
High-End Avg. $11.57b 77.74% $93.52b 17.60%
The Low $0.1b 8995.00% $71b 23.18%
The High $20b 44.97% $110b 14.96%

 

The Goldman Sachs Group, Inc. (NYSE:GS) $2.75b 10NC9 Deal Dashboard

 

GS Issue IPTs GUIDANCE LAUNCH PRICED Spread
Compression
NICs
(bps)
Trading at
the Break
+/-
(bps)
10NC9 +150a +140a (+/-2.5) +137.5 +137.5 <12.5>  bps N/A 134/132 <3.5>

 

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

 

GS  Issue Tranche Size Final Book
Size
Bid-to-Cover
Rate
10NC9 $2.75b $7.5b 2.73x

 

Final Pricing – The Goldman Sachs Group, Inc.
GS $2.75b 3.50% due 10yr 11/16/2026 NC9 @ $99.741 or T+137.5

Southern Power Co. (NYSE:SO) $1.3b 3-part 3s/5s/30s

 

SO Issue IPTs GUIDANCE LAUNCH PRICED Spread
Compression
NICs
(bps)
Trading at
the Break
+/-
(bps)
1.95% 2019 +95-100 +85a (+/-5) +80 +80 <17.5> bps 0 80/78 flat
2.50% 2021 +110-115 +105a (+/-5) +100 +100 <12.5> bps 0 100/98 flat
4.95% 2046 +235a +215a (+/-5) +210 +210 <25> bps <1> 209/207 <1>

 

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

 

SO  Issue Tranche Size Final Book
Size
Bid-to-Cover
Rate
3yr $600mm $1.2b 2x
5yr $300mm $700mm 2.33x
30yr $400mm $1.2b 3x

 

Final Pricing – Southern Power Co.

SO $600mm 1.95% due 12/15/2019 @ $99.975 to yield 1.958% or T+80  MW+12.5
SO $300mm 2.50% due 12/15/2021 @ $99.781 to yield 2.546% or T+100  MW+15
SO $400mm 4.95% due 12/15/2046 @ $98.562 to yield 5.043% or T+120  MS +35

J.P. Morgan Chase & Co. (NYSE:JPM) $1.10b 11NC10 Deal Dashboard

 

JPM Issue IPTs GUIDANCE LAUNCH PRICED Spread
Compression
NICs
(bps)
Trading at
the Break
+/-
(bps)
11NC10 +170a +155a (+/-3) +152 +152 <18> bps N/A 151/148 <1>

 

Final Pricing – J.P. Morgan Chase & Co.

JPM $1.1b 3.625% due 12/01/2027 @ $99.827 to yield 3.644% or T+152


Team Mischler thanks today’s three issuers who rewarded the nation’s oldest Service Disabled Veteran certified broker dealer with Co-Manager roles  –
The Goldman Sachs Group, Inc., J.P. Morgan Chase & Co. and Southern Power Co.

There are a lot of people on the issuance side as well as syndicate to thank.  The day has been relentlessly busy – which is always a good thing –

Next up was Southern Company and today’s $1.3B three-part 3s/5s/30s transaction that will use 3- and 5-year proceeds to fund eligible “Green” projects including solar and wind facilities located in the U.S. As I have written here many times before, the social responsibility overlay between Green initiatives and Diversity and Inclusion procurement initiatives are clear.  Why not turn to one of the power sector’s top financial minds none other than Southern Company’s Executive Vice President and Chief Financial Officer, Art Beattie who participated in a very meaningful panel discussion titled, Financing the Clean Energy Future at this week’s 51st Annual EEI Financial Conference in Phoenix that ran Sunday thru Wednesday.  The panel discussed Sustainability Reporting, Environmental, Social, Governance (ESG) Assessment, and of course Green Bonds.  The new buzzwords in the burgeoning field of socially and environmentally conscious investing.  The panel discussion also focused on current challenges that investment restrictions present, how they may grow in the future, and the potential path forward for old and new technologies.  Capturing new investment opportunities were also explored.

Today Southern Power Company illustrated what I mean when I say mandates and initiatives start from the top/down.  Quite literally, “SO’s” own CFO introduced new initiatives, he talked about them in front of the most seasoned power professionals in Phoenix replete with industry CEO’s other CFOs and movers and shakers. Sure enough, today Southern Power bridged Green bonds with D&I to create a wonderful opportunity that helped capture new high quality investors to the transaction.  Mischler is proud to say that we were active co-managers on Southern Company’s earlier green bond as well as today’s along with Apple’s and MTA green issuances.  Considering that Green bonds represent less than one half of one percent of the $20 trillion bond market we feel we’re in privileged company.  It’s not about where we are today, rather it’s about tomorrow and green is good as is social responsibility.  We see this mandate extending into asset backed issuance.

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 22 syndicate desks surveyed in today’s Best & Brightest poll.  21 of those participants are among 2016’s top 24 ranked syndicate desks according to today’s Bloomberg’s U.S. IG U.S. Investment Grade Corporate Bond underwriting league table.  In fact, all of today’s 22 participants finished in the top 25 of last year’s final IG Corporate Bloomberg league table.  The 2016 League table can be found on your terminals at “LEAG” + [GO] after which you select #201 (US Investment Grade Corporates).  The participating desks represent 79.82% 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.

Syndicate IG Corporate-only Volume Estimates for Next Week

 

IG Corporate New Issuance Next Week
11/14-11/18
Low-End Avg. $28.32b
Midpoint Avg. $29.45b
High-End Avg. $30.59b
The Low $20b
The High $40b

 

A Look at How the Voting Brackets Broke-Out for Next Week

 

Next Week
11/14-11/18
1: 20b
1: 20-25b
3: 25b
6: 25-30b
4: 30b
2: 30-35b
3: 35b
1: 35-40b
1:38b

 

 

Enjoy a safe and happy Veteran’s Day weekend!
Ron Quigley, Managing Director and Head of Fixed Income Syndicate

 

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, Sizes and Average Spread Compression from IPTs thru Launches

 

Here is this week’s day-by-day re-cap of the five key primary market driver averages for IG Corporates followed by this week’s and the prior three week’s averages:

KEY IG CORPORATE
NEW ISSUE DRIVERS
MON.
11/07
TUES.
11/08
WED.
11/09
THUR.
11/10
FRI.
11/11
AVERAGES
WEEK 11/07
AVERAGES
WEEK 10/31
AVERAGES
WEEK 10/24
AVERAGES
WEEK 10/17
New Issue Concessions <3> bps N/A N/A <3.67> bps Holiday <3.60> bps <0.87> bps <0.51> bps 3.31 bps
Oversubscription Rates 2.50x N/A N/A 4.44x Holiday 4.26x 3.32x 2.61x 3.05x
Tenors 4.50 yrs N/A N/A 14.91 yrs Holiday 13.31 yrs 11.33 yrs 7.77 yrs 9.16 yrs
Tranche Sizes $472mm N/A N/A $732mm Holiday $692mm $491mm $818mm $1,137mm
Avg. Spd. Compression
IPTs to Launch
<16.5> bps N/A N/A <24.14> bps Holiday <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
CF Industries Inc. Baa3/BBB 3.40% 12/01/2021 500 <50> curve +195a (+/-5) +190 +190 GS/MS
CF Industries Inc. Baa3/BBB 4.50% 12/01/2026 750 +high 200s/+287.5 +250a (+/-5) +245 +245 GS/MS
Con Edison Co. of NY Inc. A2/A- 2.90% 12/01/2026 250 +100a +85a (+/-5) +80 +80 CITI/JPM/MIZ/MUFG
Con Edison Co. of NY Inc. A2/A- 4.30% 12/01/2056 500 +165a +145a (+/-5) +140 +140 CITI/JPM/MIZ/MUFG
Goldman Sachs Group, Inc. A3/A 3.50% 11/16/2029 2,750 +150a +140a (+/-2.5) +137.50 +137.5 GS-sole
J.P. Morgan Chase & Co. Baa1/BBB+ 3.625% 12/01/2027 1,100 +170a +155a (+/-3) +152 +152 JPM-sole`
Southern Power Co. Baa1/BBB+ 1.95% 12/15/2019 600 +95-100 +85a (+/-5) +80 +80 BAML/BNPP/BARC/MIZ/SCOT/USB
Southern Power Co. Baa1/BBB+ 2.50% 12/15/2021 300 +110-115 +105a (+/-5) +100 +100 BAML/BNPP/BARC/MIZ/SCOT/USB
Southern Power Co. Baa1/BBB+ 4.95% 12/15/2046 400 +235a +215a (+/-5) +210 +210 BAML/BNPP/BARC/MIZ/SCOT/USB
Virginia Electric & Power A2/A 2.95% 11/15/2026 400 +105a +90a (+/-5) +85 +85 BNPP/MUFG/SCOT/STRH/USB
Virginia Electric & Power A2/A 4.00% 11/15/2046 500 +135a +115a (+/-5) +110 +110 BNPP/MUFG/SCOT/STRH/USB

 

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

Taking a look at the secondary trading performance of this week’s IG and SSA new issues, of the 13 deals that printed, 11 tightened versus NIP for a 84.50% improvement rate while with 2 trading flat (15.50%).

Issues are listed from the most recent pricings at the top working back to Monday at the bottom.  Thanks! –RQ

 

Issuer Ratings Coupon Maturity Size IPTs GUIDANCE LAUNCH PRICED LEADS
CF Industries Inc. Baa3/BBB 3.40% 12/01/2021 500 <50> curve +195a (+/-5) +190 +190 177/174
CF Industries Inc. Baa3/BBB 4.50% 12/01/2026 750 +high 200s/+287.5 +250a (+/-5) +245 +245 231/228
Con Edison Co. of NY Inc. A2/A- 2.90% 12/01/2026 250 +100a +85a (+/-5) +80 +80 79/77
Con Edison Co. of NY Inc. A2/A- 4.30% 12/01/2056 500 +165a +145a (+/-5) +140 +140 137/135
Goldman Sachs Group, Inc. A3/A 3.50% 11/16/2029 2,750 +150a +140a (+/-2.5) +137.50 +137.5 134/132
J.P. Morgan Chase & Co. Baa1/BBB+ 3.625% 12/01/2027 1,100 +170a +155a (+/-3) +152 +152 151/148
Southern Power Co. Baa1/BBB+ 1.95% 12/15/2019 600 +95-100 +85a (+/-5) +80 +80 80/78
Southern Power Co. Baa1/BBB+ 2.50% 12/15/2021 300 +110-115 +105a (+/-5) +100 +100 100/98
Southern Power Co. Baa1/BBB+ 4.95% 12/15/2046 400 +235a +215a (+/-5) +210 +210 209/207
Virginia Electric & Power A2/A 2.95% 11/15/2026 400 +105a +90a (+/-5) +85 +85 84/82
Virginia Electric & Power A2/A 4.00% 11/15/2046 500 +135a +115a (+/-5) +110 +110 109/107
Kellogg Co. Baa2/BBB 2.65% 12/01/2023 600 +120-125 +110a (+/-3) +107 +107 105/103
Stanley Black & Decker A-/BBB+ 1.622% 11/17/2018 345 +95-100 N/A +80 +80 75/73

 

Indexes and New Issue Volume

 

Index Open Current Change
LUACOAS 1.32 1.30 <2>
IG27 74.467 75.447 0.98
HV27 168.795 163.29 <5.505>
VIX 14.38 14.74 0.36
S&P 2,163 2,167 4
DOW 18,589 18,807 218
 

USD

 

IG Corporates

 

USD

 

Total IG (+SSA)

DAY: $8.05 bn DAY: $8.05 bn
WTD: $8.995 bn WTD: $8.995 bn
MTD: $16.461 bn MTD: $16.461 bn
YTD: $1,185.242 bn YTD: $1,515.126 bn

 

Lipper Report/Fund Flows – Week ending November 9th   

     

  • For the week ended November 9th, Lipper U.S. Fund Flows reported an inflow of $675.4m into Corporate Investment Grade Funds (2016 YTD net inflow of $40.967b) and a net outflow of $668.6m from High Yield Funds (2016 YTD net inflow of $6.285b).
  • Over the same period, Lipper reported a net outflow of $45.4m from Loan Participation Funds (2016 YTD net outflow of $1.563b).
  • Emerging Market debt funds reported a net inflow of $345.7m (2016 YTD inflow of $7.522b).

 

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 26.75 bps wider versus their post-Crisis lows!

 

ASSET CLASS 11/10 11/09 11/08 11/07 11/04 11/03 11/02 11/01 10/31 10/28 1-Day Change 10-Day Trend PC
low
IG Avg. 136 137 139 140 141 141 140 139 138 137 <1> <1> 106
“AAA” 76 80 82 82 83 83 83 82 82 80 <4> <4> 50
“AA” 83 85 85 86 87 87 87 86 86 85 <2> <2> 63
“A” 107 109 110 111 112 112 112 111 111 110 <2> <3> 81
“BBB” 177 178 180 181 183 182 181 180 178 176 <1> +1 142
IG vs. HY 361 357 359 361 379 374 375 366 353 339 +4 +22 228

 

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 33.37 bps wider versus their post-Crisis lows!

                                    

INDUSTRY 11/10 11/09 11/08 11/07 11/04 11/03 11/02 11/01 10/31 10/28 1-Day Change 10-Day Trend PC
low
Automotive 119 121 121 122 122 120 122 121 120 119 <2> 0 67
Banking 124 127 128  129 130 130 130 129 129 128 <3> <4> 98
Basic Industry 176 177 179 180 182 181 181 180 179 179 <1> <3> 143
Cap Goods 102 103 105 105 107 106 106 105 105 103 <1> <1> 84
Cons. Prod. 108 109 110 111 112 112 112 111 110 109 <1> <1> 85
Energy 179 179 180 182 184 183 183 180 179 177 0 +2 133
Financials 161 162 163 164 167 166 165 164 162 160 <1> +1 97
Healthcare 118 121 124 124 126 124 123 122 120 118 <3> 0 83
Industrials 138 140 141 142 144 143 143 141 140 139 <2> <1> 109
Insurance 148 150 152 153 154 154 153 153 153 153 <2> <5> 120
Leisure 138 139 138 138 139 138 138 138 138 138 <1> 0 115
Media 161 163 164 165 167 166 165 164 162 160 <2> +1 113
Real Estate 146 147 145 146 146 146 146 146 146 146 <1> 0 112
Retail 118 121 122 122 123 123 122 121 120 118 <3> 0 92
Services 130 130 130 130 130 130 130 129 129 129 0 +1 120
Technology 112 115 117 118 120 120 120 119 117 115 <3> <3> 76
Telecom 165 168 170 171 173 172 172 170 168 167 <3> <2> 122
Transportation 136 137 138 139 140 140 139 138 137 137 <1> <1> 109
Utility 137 137 138 138 139 139 138 138 138 137 0 0 104

 

New Issue Pipeline

Please note that for ratings I use the better two of Moody’s, S&P or Fitch.

 

  • HollyFrontier Corp. (Baa3/BBB-) asked Bank of America/Merrill Lynch, Citigroup, Goldman Sachs, MUFG and Toronto Dominion to arrange fixed income investor calls are scheduled for Monday and Tuesday, November 14th and 15th.  Citigroup coordinated.
  • Bank Nederlandse Gemeenten (Aaa/AAA) the Dutch bank and Local Government Funding Agency mandated BNP Paribas, HSBC and Toronto Dominion to arrange fixed income investor calls in preparation for its inaugural 144a/REGS Sustainability Bond transaction that could soon follow their conclusion.
  • The Republic of South Africa (Baa2/BBB-) mandated HSBC, J.P. Morgan and Nedbank to arrange fixed income investor meetings in the U.S., Europe, Middle East and Asia that began on Sunday, November 6th in Dubai.  Meetings took place thru Friday, November 11th.
  • Korea Hydro and Nuclear Power Co. Ltd. (Aa2/AA) mandated BNP Paribas and Citigroup to arrange fixed income investor meetings in the U.S. that began Tuesday, October 18th in New York, continued on the 19th in Boston and wrapped up in Chicago on the 20th.
  • Hyundai Capital Services (Baa1/A-) mandated Citigroup, HSBC and Nomura as joint book runners to arrange investor meetings that began on Monday, October 17th in preparation for a dollar-denominated 144a/REGS new issue.
  • Nacional Financiera SNC (A3/BBB+) mandated Bank of America/Merrill Lynch and HSBC as joint leads to arrange fixed income meetings that took place Wednesday, September 27th thru Thursday the 28th in London, New York, Boston and Los Angeles in preparation for a possible dollar-denominated new issue that could soon follow their conclusion.
  • Banco Inbursa (BBB+/BBB+) mandated Bank of America/Merrill Lynch, Citigroup and Credit Suisse as joint book runners to arrange fixed income investor meetings in the U.S., Mexico and Europe that began on Wednesday, September 7th and continued through the 12th making stops in Mexico, London, Boston, New York and L.A. Fitch recently assigned an expected long-term rating of “BBB+” to Banco Inbursa’s proposed $1.5b 10-year Senior Notes.
  • Industrial Bank of Korea (Aa2/AA-) mandated HSBC and Nomura to arrange fixed income investor meetings in Hong Kong and Singapore that began on Monday, August 22nd in preparation for a 144a/REGS dollar-denominated offering that could soon follow its conclusion.

 

M&A Pipeline – $330.60 Billion in Cumulative Enterprise Value!

Please note that for ratings I use the better two of Moody’s, S&P or Fitch.

 

  • General Electric Co. (A3/A), a primarily equipment manufacturer, announced on November 1st that it will partner with Baker Hughes Inc. (A/A-), which is essentially a drilling and hydraulic fracturing company in what is being billed as the first “full stream” oil services company including upstream exploration and production, midstream transportation and downstream refining and marketing. Together the GE-controlled entity will represent the world’s second largest oi-field services company with projected revenues of $34bn in 2020. GE will be a 62.5% owner. GE is expected to borrow $7.4b to fund the deal.
  • Qualcomm Inc. (A1/A+) agreed to acquire NXP Semiconductors NV (Ba2/BB+) for $39b in what is the largest semiconductor purchase in history. It’s also the second largest tech merger behind Dell’s purchase of EMC.  Qualcomm will pay a 34% premium and including debt the deal is worth $47b. The deal will be financed with offshore cash and new debt. Goldman Sachs and Evercore advised Qualcomm.  Goldman Sachs and J.P. Morgan are providing debt financing for the deal.
  • AT&T (A-/BBB+) agreed to buy Time Warner (Baa2/BBB+) for $85.4b.  This follows Comcast’s purchase of NBCUniversal and Verizon’s acquisition of Yahoo. Both AT&T and Time Warner boards approved the deal that now has to confront regulatory hurdles. It hopes to complete the transaction by the end of 2017.  To finance the half cash, half stock deal will involves AT&T taking on $40b in bridge loans.
  • American Electric Power (“AEP) (Baa1/BBB+) today 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.
  • Bayer AG (Baa3/BBB+) agreed to buy Monsanto Co. (A3/A-) in a deal valued at $66 billion. Bayer agreed to pay $128 per share in cash – a 21% premium to Monsanto’s closing price on 9/13.  It represents the year’s largest deal and the single largest takeover by a German company.
  • NextEra Energy Inc. (Baa1/A-) agreed to purchase Dallas-based, Oncor Electric Delivery Co. LLC (Baa1/A) for $18.4b. Oncor is the largest electric transmission operator in Texas serving approximately 10 million customers in the Lone Star state.  This not only gives NextEra a dominant position in Texas’ electric sector but is critical in taking Energy Future Holdings out of chapter 11 bankruptcy.
  • Zimmer Biomet (Baa3/BBB) completed its offer to purchase all outstanding shares of LDR stock on Wednesday, July 13th.  Zimmer announced on June 7th that it agreed to purchase medical device maker LDR Holding Corp. for $37 per share in cash for a total transaction value of $1b. Zimmer expects to maintain its IG rating and to issue $750mm in Senior Unsecured Notes in order to repay the credit facility. Goldman Sachs is acting as advisor to Zimmer Biomet.
  • This past February, Algonquin Power & Utilities Corp. (NR/BBB) announced it will acquire The Empire District Electric Company (N/A) in a $3.4b CAD or $2.4b USD equivalent all cash transaction and today, Thursday, June 16th, Empire’s shareholders overwhelmingly voted in support of the merger to the tune of 95%.  Regulatory approvals are the next step before finalizing the sale expected sometime in Q1 2017. The merger assumes $900mm in USD debt.
  • Symantec (Baa3/BBB-) announced on June 13th that it entered into an agreement to purchase Blue Coat (Caa2/CCC) for $4.56b in cash. The deal will close sometime in Q3 2016.  Both company boards approved the deal. The transaction will be funded with available cash and $2.8b of new debt. J.P. Morgan is the lead adviser to Symantec.  Bank of America/Merrill Lynch, Barclays and Wells Fargo are also advisers.
  • On Friday, April 29th the Alere Inc. (Caa1/CCC+) Board of Directors rejected a request by Abbott Labs (A2/A+) to terminate their merger agreement in return for around $40mm for transaction expenses. Abbott cited concerns about various Alere representations in their merger agreement including a delayed 2015 Form 10-K filing as well as government investigations. Abbott Labs (A2/A+) had announced on Monday, February Baa1/BBB+1st, that it would acquire Alere Inc. (Caa1/CCC+) for $5.8b in which “ABT” would pay $56 per share of ”ALR.”  The deal was to be financed with debt.  ABT expects a strong IG rating despite the new debt. The deal is subject to “ALR” shareholder as well as regulatory approvals.
  • Abbott Labs (A2/A+) announced on Thursday, April 28th that it will buy St. Jude’s Medical Inc. (Baa2/A-) in a cash-stock deal valued at $25b to reinforce the medical devices maker’s stake in cardiovascular care. Abbott will fund the cash portion of the transaction with new medium- and long-term debt. Bank of America/Merrill Lynch and Evercore are acting as advisors to Abbott. The deal is expected to close by Q4 2016.
  • Sherwin Williams (A2/A-) announced on Monday, March 21st that it will purchase Valspar Corp. (Baa2/BBB) for $9.3b or $113 per share.  The acquisition will help Sherwin-Williams gain access to big-box retailers like Lowe’s where Velspar has access. It will also provide overseas expansion opportunities.  Sherwin Williams will finance the merger with available cash, existing credit facilities and new debt.  The deal should close sometime before the end of Q1 2017.
  • TE Connectivity (A-/A-) announced it will buy medical device maker Creganna Medical for $895mm in cash.  The deal will be funded with available cash and debt.
  • Anthem Inc. (Baa2/A) in July 2015, proposed to purchase Cigna Corp. (Baa1/A) for $54b or $188 per share furthering the consolidation in the healthcare sector. The deal is expected to close sometime during the second half of 2016. The merger would involve 53mm members and will include $22b in new debt and loans.
  • Amphenol Corporation (Baa1/BBB+) announced on June 29th 2015 that it made a binding offer to acquire 100% of FCI Asia
TODAY’S ECONOMIC DATA PERIOD SURVEYED ESTIMATES ACTUAL NUMBER PRIOR NUMBER PRIOR REVISED
Initial Jobless Claims Nov. 5 260k 254k 265k —-
Continuing Claims Oct. 29 2025k 2041k 2026k 2023k
Bloomberg Consumer Comfort Nov. 6 —- 45.1 44.6 —-
Mortgage Delinquencies Q3 —- 4.52% 4.66% —-
MBA Mortgage Foreclosures Q3 —- 1.55% 1.64% —-
Monthly Budget Statement October <$70.0b> <$44.2b> <$136.6b> —-

 

Rates Trading Lab

 

U.S. Treasuries had another poor performance today but not even close to the disaster that occurred yesterday. Today the benchmarks lost between 1.3 bps (2yr: 0.907%) to 6.1 bps (7yr: 1.890%). It has been a brutal week for the Treasury market. Overseas bond markets were also taken to the woodshed today (JGB’s, Bunds, Gilts, etc…). Supply was a factor today ($15 bn 30yr auction / details below) but the Trump victory on Tuesday night is 99% of the reason for the extremely heavy pressure on the Treasury market. Today the Trump camp was talking about rolling back Dodd-Frank and that type of talk leads to risk on and rates selling. I think the Treasury sell off is overdone but who wants to step in front of a freight train heading down hill with no breaks? USTs need a catalyst to offset the Trump sell off and at this point I am not sure what that catalyst will be. The Dow closed up over 200 points and traded at a new all-time high today. On the flip side the NASDAQ was in the loss column. It has been a volatile and wild two days since Trump won the Presidential election. What will the next four years bring?

-Tony Farren

 

UST Resistance/Support Table

 

CT3 CT5 CT7 CT10 CT30
RESISTANCE LEVEL 99-23+ 99-00+ 98-28+ 99-11+ 89-01+
RESISTANCE LEVEL 99-21+ 98-26+ 98-17+ 99-03+ 88-03+
RESISTANCE LEVEL 99-19 98-20+ 98-11+ 98-29 87-08+
         
SUPPORT LEVEL 99-166 98-176 97-30 98-22 85-27+
SUPPORT LEVEL 99-146 98-12 97-23 98-13+ 85-11
SUPPORT LEVEL 99-116 98-08 97-18 98-01 84-24+

 

Tomorrow’s Calendar

 

  • China Data: Nothing Scheduled
  • Japan Data: Loans & Discounts Corp, PPI, Tertiary Industry Index MoM
  • Australia: Nothing Scheduled
  • EU Data: German Oct CPI U.K. Sep Const Output
  • S. Data: Nov U Mich
  • Supply: Italy 3, 7, 24, 31y (€5.25-7.25bn), Spain/France details
  • Events: Ratings reviews, U.S. closed
  • Speeches: Fischer, Debelle, Poloz, Lane

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Goldman Sachs Raises the D&I Barbell w 1bil Debt Issuance
October 2016      Debt Market Commentary, Recent Deals   

Quigley’s Corner 10.25.16- Goldman Sachs Raises the D&I Barbell

 

Investment Grade New Issue Re-Cap 

Global Market Recap

IG Primary & Secondary Market Talking Points

Goldman Sachs Group, Inc. $1b 11NC10 FRN Deal Dashboard

Goldman Sachs Diversity Dealer Game Changer

An Open Letter and Offer to Mr. Scott Stringer – New York City Comptroller
New Issues Priced

Indexes and New Issue Volume

Lipper Report/Fund Flows – Week ending October 19th  

Investment Grade Credit Spreads (by Rating/Issuer)

New Issue Pipeline

M&A Pipeline

Economic Data Releases

Rates Trading Lab

Tomorrow’s Calendar

 

6 IG Corporate issuers priced 7 tranches between them totaling $4.90b bringing the WTD total to $14.75b or 60% of this week’s syndicate midpoint average estimate calling for $25.48b.  But today was all about one deal –  a TLAC deal for The Goldman Sachs Group, Inc.  The deal had much more to do about breaking and shattering new ground for diversity and inclusion.  And you know what?  THAT is the story I’m telling tonight.  Let’s check our various recaps first and then continue scrolling down to another great read from the House of Gold!

Global Market Recap

 

  • S. Treasuries – USTs closed mixed & little changed with a flatter curve.
  • Overseas Bonds – Core Europe were little changed & JGB’s had small gains.
  • 3mth Libor – Set at the highest yield since May 2009 (0.88567%).
  • Stocks – U.S. red at 3:30pm. Europe closed red except the FTSE. Asia closed higher.
  • Economic – The U.S. data was solid except for consumer confidence (-4.9 points).
  • Overseas Economic – Strong IFO data in Germany but the data in France was weaker.
  • Currencies – USD mixed vs. the Big 5. DXY Index reached highs since early February.
  • Commodities – Good day for gold, copper & silver but not for crude oil.
  • CDX IG: +0.75 to 74.52
  • CDX HY: +2.97 to 400.24
  • CDX EM: -1.13 to 231.09

*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 7 IG Corporate-only new issues was 15.79 bps.
  • BAML’s IG Master Index was unchanged at +135.  +106 represents the post-Crisis low dating back to July 2007.
  • Bloomberg/Barclays US IG Corporate Bond Index OAS was unchanged at +_130.  The “LUACOAS” wide since 2012 is +215. The tight is +135.
  • Standard & Poor’s Global Fixed Income Research was unchanged at +181.  The +140 reached on July 30th 2014 represents the post-Crisis low.
  • Investment grade corporate bond trading posted a final Trace count of $14b on Monday versus $12b Friday and $13.9b the previous Monday.
  • The 10-DMA stands at $15.3b.

 

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

 

IG Corporate New Issuance This Week
10/24-10/28
vs. Current
WTD – $14.75b
October 2016 vs. Current
MTD – $83.345b
Low-End Avg. $24.61b 59.93% $87.83b 94.89%
Midpoint Avg. $25.48b 57.89% $88.59b 94.08%
High-End Avg. $26.35b 55.98% $89.35b 93.28%
The Low $15b 98.33% $75b 111.13%
The High $35b 42.14% $125b 66.68%

 

The Goldman Sachs Group, Inc. $1b 11NC10 FRN Deal Dashboard

 

GS Issue IPTs GUIDANCE LAUNCH PRICED Spread
Compression
NICs
(bps)
Trading at
the Break
+/-
(bps)
11NC10 FRNs 3mL+180a 3mL+175 # 3mL+175 3mL+175 <5> +5 3mL+176/174 +1

Here’s a look at the relative value analysis to derive NIC on today’s GS 11NC10 FRNs.

  • The outstanding GS 10yr was G+144 pre-announcement this morning.
  • Add 5 bps for the 10s/11s curve = G+149
  • Add in 16 bps for 10yr mid swaps = G+165
  • Interpolating 10yr m/s to 11yr m/s = 5 bps or G+170 to get an 11yr bullet equivalent.
  • NIC = 5 bps.

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

 

GS  Issue Tranche Size Final Book
Size
Bid-to-Cover
Rate
11NC10 FRNs $1b $2.7b 2.7x

 

Goldman Sachs Final Pricing
GS $1b 11NC10 FRNs due 10/28/2026 @ $100.00 or 3mL+175

goldman sachs-diversity-D&I

Goldman Sachs Diversity Dealer Game Changer: It’s All About Capability & Distribution
What Goldman Sachs did today was something they tried about 18 months ago.  They were experimenting then and carried thru today with the single most formidable ratcheting up of meaningful diversity and inclusion initiatives that I have ever seen before in this space.  What they did, and as I wrote in this morning’s very early deal announcement at 7:47 am ET, was to encourage strong participation among today’s 12 diversity co-managers on their $1bil 11NC10 FRNs.  It was Goldman’s most inclusive transaction.  Everyone started from the same playing field upon today’s announcement. The built-in ‘incentive’ was where the pedal meets the metal so to speak by “rewarding unique orders in addition to each firm’s underwriting liability.” In Mischler’s case, that was 0.5%.  It was all completely about distribution. What that did was send a signal to diversity firms to ratchet up their game and prove their capabilities by delivering on each of their respective promises to provide meaningful incremental/tertiary tier II and III HIGH QUALITY distribution.  These are the true value add elements that separate the wheat from the chaff.

Let me explain the above: Irrespective of industry, and notwithstanding cultural and/or corporate guidelines designed to embrace and advance diversity and inclusion (D&I) initiatives with regard to internal hiring, strategic engagements and/or outsourcing, the fact is Goldman “gets the joke.” Based on my own lengthy tenure on Wall Street, it is clear to me, if not most that GS’s goal is not to simply “check the box” and  arbitrarily select from the myriad of “minority-owned brokerdealers” when they are the Issuer or the lead bookrunner of a particular underwriting. For those who didn’t get the memo, Goldman is a globally-recognized thought-leader i.e. best practices, and when it comes to D&I, they don’t simply ‘check the box’; their internal mandate is to enlist only truly capable firms, not merely those whose owners fall into one of the various minority classifications (e.g. Woman-owned aka WMBEs, African American-owned, Hispanic American owned, Service-Disabled Veteran owned, etc).

At Mischler, we agree with the GS philosophy wholeheartedly. It is imperative to embrace diversity, but the embrace should be driven by capability and excellence, not merely whether the firm is owned by a ‘certified minority’ . It is an approach that Mischler embraces when selecting the Veteran-centric philanthropic organizations that we support year round and during the months of May and November, when we pledge a portion of the entire month profits to honor Memorial Day and Veterans Day. NO enterprise, whether it be a Fortune Corporation/Issuer, a Public Plan Sponsor, a global investment bank, or an Investment Manager that has D&I goals and/or mandates should be ‘checking the box’ without first checking the actual capabilities of the respective service provider!

In the case of today’s $1bil placement, GS remained focused on reviewing their myriad diversity order books and to only select co-manager firms according to an internal and granular set of criteria.  Among other things, Goldman would have the right to scrutinize accounts and reflect their thoughts through their final allocations to each firm.

With our underwriting liability of 0.5% applied to today’s deal size of $1b that equates to $5mm allocation. Assuming we secured our full 5mm underwriting liability (given our typical high quality order books), it would be a tall order to allocate each of several dozen institutional accounts with a meaningful amount of paper.  The prospective allocations would simply not prove meaningful enough to those fund managers. But Goldman wanted to capture new, quality middle markets accounts that include a range of investor profiles, as well as geographically diverse placement opportunities across the globe. Goldman included a good firm today when they called Mischler Financial, the nation’s oldest Service Disabled Veteran broker dealer. We are grateful for the bulge bracket firms who look for the distribution value-add.  That said, one particular firm (shall I say notorious shop?) recently asked us to build a book, encouraged our orders and claimed they’d work together on securing us the best possible allocation, only to give us an otherwise deminimis allocation of bonds once the books were closed.

Before readers infer a sense of sour grapes on the part of this writer, that is not the case.  We’re big boys and girls here and we’ve been to more rodeos than many of our peers insofar as the new issue allocation process. But, as I shared that story with several bulge bracket firms during the past several days, the senior syndicate team members I spoke with genuinely found it “deplorable” that any desk would put a prospective co-manager or selling group member through the exercise of building a book of firm IOIs, only to leave that firm and their accounts with less than crumbs for the effort. In fact, one syndicate head said, “If we know allocations will be very difficult we will always tell you there’s no distribution this go ‘round, but we would NEVER be so egregious to encourage it and then disrespect you like that. It’s plain bad business that hurts what you guys are trying to do and you work so hard at doing it right!”  Indeed! And that story got around folks, but then there is Goldman Sachs–a firm that has historically proven to have honor and integrity whenever interacting with their underwriting group partners.

Conclusion, Goldman did something bold and daring today for diversity and inclusion and for their transaction.  It IS a game changer that incentivizes on a much grander scale.  The message sent is clear – Goldman will partner with you, but you need to work hard at it; you need to deliver and execute consistently and you need to show us quality accounts, solid order books and be able to place the paper when we give it to you.

Who and where are the Mischler investor accounts that participated in today’s GS transaction?  They represented a total of 13 different investor profile types. They exist throughout the United States. They are in the United Kingdom and throughout Europe. They are in Asia, they are in the Caribbean and LATAM.  There were over 3 dozen MFG clients on today’s GS order book.  They are true quality accounts; good, solid, reliable investors who are often crowded out in our new world order by global money managers who pin down most of today’s new issues.  These middle market investors yield too. They want to buy the best, highest-rated IG credits.  They often add to positions in the secondary market.

And, they all showed up today.  I personally thank each and every one of them.  They get the “QC” and they read it.  They understand all the hard labor we expend in this space, and they understand we are led by an executive team that is honorable and financially committed to stick with it for the long haul.  We are called Mischler Financial Group. We’re about a proudly earned certification; we’re about the strongest distribution in the business; we’re about very strong capital, a fantastic operations team that is second to none, and we’re about stellar relationships across the DCM and Syndicate ecosystem. That’s what it takes in today’s competitive landscape and we greatly appreciate the wonderful partnership we share with Goldman Sachs. We’re also grateful for Goldman’s revolutionary transaction today; one that was focused on best-in-class financial industry partners who can help extend the GS brand with integrity and reliability!

Words Count, Most of All These Two Words: Thank You.

Before this “guy-in-the-corner” walks out of his bedroom each morning, I say “thank you”.  It’s important folks.  Sometimes the only prayer we ever have in life is “thank you” and it will be enough.  You know that I mean that.  It’s time for roll call again and it gives me great pleasure to shout out Team Goldman Sachs not only for being there for our firm today, but for Diversity & Inclusion in general.  Thank you to Team GS not for merely moving the needle forward today for inclusive initiatives, but for bulldozing it ahead with a new powerful distribution incentive.  Your trajectory in finding new ways to lend meaning to the mandate never surprises, rather it overwhelms because you are doing great things the right way.  Our firm, and others with proven capabilities grow as a result and all the accounts that participated today in yet another major bank’s TLAC issuance will come to us to execute across myriad other product lines.  So, from the desk of Chairman and CEO Lloyd Blankfein to Jonny Fine; from Tony Shan to Matt Jackson; from Salina Lee and Elizabeth Plunkett to Jason Ghilarducci, you are all part of one team that came together again on deal day to raise the bar for D&I while fortifying your own self-funding with new global investors that cover a diversity of profiles and regions.

Simply said, “Thank you all!”

An Open Letter and Offer to Mr. Scott Stringer – New York City Comptroller

Mr. Scott Stringer seems like a nice enough fellow. His resume includes being the 44th and current New York City Comptroller and a New York Democratic politician who previously served as the 26th Borough President of Manhattan.  Regarding Mr. Stringer’s recent and LOUD October 16th press request for The Goldman Sachs Group Inc. (among 14 other major companies) to disclose data on the diversity of their suppliers and to increase spending with firms owned by minorities and women and veterans.  The fact is, there is currently no mandate on the part of NYC Comptroller to include SDV-owned broker-dealers, although select managers do informally include such firms. I invite Mr. Stringer and/or his designates to read the “QC.” They’ll find what they’re looking for, which is nothing but a best-in-class procurement initiative in the IG dollar DCM; no, make that Global Debt Capital Markets.

Contrary to the less-than-subliminal context of the above noted press release, Goldman does understand and fully embraces the notion that supplier diversity is the next frontier for companies seeking to manage risk and create sustainable shareowner value. In fact, Goldman has ‘gotten it’ for many years. Starting from inside the office of Chairman and CEO Lloyd Blankfein right on down to the DNA of his top lieutenants like Jonathan “Jonny” Fine, who heads syndicate at the House of Gold, Goldman knows that a broader pool of diverse financial suppliers provides tangible benefits to corporations in terms of price and quality.  In today’s case, their very own company!  As Mr. Stringer said, and I quote, “The Company talks the talk but absent disclosure, it’s impossible to measure the impact of their efforts.”

Mr. Stinger, I’m the guy-in the corner and I’m here to RESPECTFULLY suggest to you that Goldman has not only moved the needle forward for all of D&I in the financial services industry, they are at the cutting edge. Contrary to what you implied in the press statement, and despite the ubiquitous trend of bashing big banks in general, I’d humbly argue that for GS, it’s not all about the money, rather it’s about incentivizing us (minority firms) to grow so that we’re around in the future.  Goldman has created such a meaningful diversity mandate that it has literally helped my firm, Mischler Financial Group, Inc. to become one of the best in the country in the fixed income markets. We are a sustainable proposition. GS has raised the bar in a healthy spirit of competition in the entire diversity space across our industry in order to bring out the best in all of us and our respective platforms.

As opposed to ‘calling out’ GS and challenging their D&I process, we respectfully encourage the NYC Comptroller’s office to take a page from the GS playbook vis a vis the process by which NYC’s pension funds determine how and who they include within their own “minority broker” approvals and respective allocation of order schemes. The NYC Comptroller’s Office does not [yet] recognize Service-Disabled veteran brokerdealers; but does recognize other minority classifications within this industry. At such time as you expand the minority classifications to include SDV-owned/operated BDs,  you’ll discover that Mischler was one of the very first firms to be certified by State of New York in connection with the 2014 NYS legislation that established mandates for NYS agencies to procure from Service-Disabled Veteran owned enterprises. While the NYC Comptroller office has not yet embraced State of New York’s SDV legislation, we are hopeful that you will, and when you do, it will likely prove additive in many ways.

Mr. Stringer, if you’d like more perspective and/or insight about this topic, I’m happy to have a dinner with you. We’ll go “Dutch treat.”   I promise you it’ll be a fun and informative meeting, and I’ll happily share with you the history of outreaches made to your office specific to this subject that have seemingly fallen through the cracks. You’ll have one less thing to check off your “to do” list! Hopefully, our firm will not be penalized for creating ‘greater transparency’ via this “op-ed.”  My contact info is at the bottom of the page.

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 Syndicate

 

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.
10/24
AVERAGES
WEEK 10/17
AVERAGES
WEEK 10/10
AVERAGES
WEEK 10/03
AVERAGES
WEEK 9/26
New Issue Concessions 2.67 bps 3.31 bps 1.87 bps 4.36 bps 2.71 bps
Oversubscription Rates 2.52x 3.05x 3.28x 4.20x 3.52x
Tenors 6.75 yrs 9.16 yrs 11.51 yrs 12.16 yrs 10.51 yrs
Tranche Sizes $985mm $1,137mm $640mm $523mm $646mm

 

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
Comm. Bank of Australia Aa2/AA- FRN 11/07/2019 500 3mL+equiv 3mL+equiv 3mL+64 3mL+64 CBA/HSBC/JPM
Comm. Bank of Australia Aa2/AA- 1.75% 11/07/2019 1,000 +90-95 +80 the # +80 +80 CBA/HSBC/JPM
Goldman Sachs Group, Inc. A3/A FRN 11NC10 1,000 3mL+180a 3mL+175 the # 3mL+175 3mL+175 GS-sole
Lennox International Inc. Baa3/BBB 3.00% 11/15/2023 350 +180a +155a (+/-5) +145 +145 JPM/WFS
M&T Bank Corp. Baa2/BBB- 5.125% 11/01/2026 500 5.25%a 5.125% the # 5.125% 3mL+352 CS/JPM/RBC/UBS
National Rural Utilities Coop Fin. Corp. A2/A 1.50% 11/01/2019 300 +65-70 +55a (+/-5) +50 +50 JPM/MIZ/PNC/STRH
Orange SA Baa1/BBB+ 1.625% 11/03/2019 1,250 +80-85 +70a (+/-3) +67 +67 BAML/JPM/MS/MUFG

 

Indexes and New Issue Volume

 

Index Open Current Change
LUACOAS 1.30 1.30 0
IG27 73.767 74.537 0.77
HV27 161.385 161.635 0.25
VIX 13.02 13.46 0.44
S&P 2,151 2,143 <8>
DOW 18,223 18,169 <54>
 

USD

 

IG Corporates

 

USD

 

Total IG (+SSA)

DAY: $4.90 bn DAY: $4.90 bn
WTD: $14.75 bn WTD: $14.75 bn
MTD: $83.345 bn MTD: $126.695 bn
YTD: $1,158.081 bn YTD: $1,481.915 bn

 

Lipper Report/Fund Flows – Week ending October 19th  

     

  • For the week ended October 19th, Lipper U.S. Fund Flows reported an inflow of $2.431b into Corporate Investment Grade Funds (2016 YTD net inflow of $41.086b) and a net outflow of $160m from High Yield Funds (2016 YTD net inflow of $11.119b).
  • Over the same period, Lipper reported a net inflow of $514.8m into Loan Participation Funds (2016 YTD net outflow of $1.956b).
  • Emerging Market debt funds reported a net inflow of $621.7m (2016 YTD inflow of $7.333b).

 

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 26.75 bps wider versus their post-Crisis lows!

 

ASSET CLASS 10/24 10/21 10/20 10/19 10/18 10/17 10/14 10/13 10/12 10/11 1-Day Change 10-Day Trend PC
low
IG Avg. 135 135 135 135 136 137 136 137 137 137 0 <2> 106
“AAA” 78 77 76 76 76 78 78 79 79 79 +1 <1> 50
“AA” 83 83 83 82 83 84 84 84 84 84 0 <1> 63
“A” 108 108 108 108 109 109 109 110 110 110 0 <2> 81
“BBB” 174 175 174 175 176 176 176 177 177 177 <1> <3> 142
IG vs. HY 325 327 327 331 336 339 336 345 338 338 <2> <13> 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 32.21 bps wider versus their post-Crisis lows!

                                    

INDUSTRY 10/24 10/21 10/20 10/19 10/18 10/17 10/14 10/13 10/12 10/11 1-Day Change 10-Day Trend PC
low
Automotive 117 117 117 117 117 118 118 119 119 119 0 <2> 67
Banking 127 127 128 128 129 130 129 130 129 130 0 <3> 98
Basic Industry 177 179 179 180 180 180 179 180 179 180 <2> <3> 143
Cap Goods 101 101 101 101 101 102 102 102 102 102 0 <1> 84
Cons. Prod. 105 105 105 104 105 106 106 106 106 107 0 <2> 85
Energy 174 175 175 177 179 179 178 180 180 181 <1> <7> 133
Financials 160 160 161 161 162 163 163 163 163 163 0 <3> 97
Healthcare 114 114 114 114 114 114 114 114 115 116 0 <2> 83
Industrials 136 136 135 136 136 137 137 137 137 138 0 <2> 109
Insurance 154 155 155 155 156 155 155 156 156 156 <1> <2> 120
Leisure 136 135 136 136 137 137 137 137 138 138 +1 <2> 115
Media 157 157 155 155 155 157 157 158 158 159 0 <2> 113
Real Estate 147 147 147 148 148 149 149 148 149 149 0 <2> 112
Retail 115 114 114 114 114 115 115 115 115 115 +1 0 92
Services 128 128 128 128 129 129 129 130 130 130 0 <2> 120
Technology 112 112 112 111 112 113 113 114 114 115 0 <3> 76
Telecom 162 161 156 155 156 157 158 158 158 158 +1 +4 122
Transportation 136 136 137 137 137 137 137 138 138 137 0 <1> 109
Utility 136 137 137 138 138 138 139 139 139 139 <1> <3> 104

 

New Issue Pipeline

Please note that for ratings I use the better two of Moody’s, S&P or Fitch.

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