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Better Matters For Verizon Corporate Debt Issuance; Mischler Commentary
July 2016      Debt Market Commentary, Recent Deals   

Quigley’s Corner 07.27.16-Better Matters (NYSE:VZ)

 

Investment Grade Corporate Debt New Issue Re-Cap

“Better Matters!”  New Lowest 6 “BBB”-Rated IG Corporate Coupon in History

Verizon Communications Inc’s. Commitment to D&I and Our Nation’s Veterans

Global Market Recap

New Issues Priced

Lipper Report/Fund Flows

Investment Grade Credit Spreads (by Rating/Industry)

IG Secondary Market Trade Lab

New Issue Pipeline

M&A Pipeline

Economic Data Releases

Rates Trading Lab

 

I have been waiting a long time for an issuer, any issuer for that matter, to price a new issue the day of an FOMC Rate Decision.  The street has been unreasonably overcautious for no reason at all in avoiding treatment of FOMC Rate days as potential print days.  The Fed isn’t doing anything anytime soon and what’s more, when you take the highly dysfunctional Fed-speak out of the picture it’s a no brainer to “go” on those days.  Today’s Fed meeting has no press conference to follow it and no Q&A with Yellen.  So, congratulations to Verizon Communications Inc. Treasury/Funding and its leads for announcing and pricing today’s blockbuster 5-part 3yr FXD/FRN, 5s, 10s and 30-year new issue. That right there is an example of issuer and DCM confidence and leadership.

Today’s IG Corporate tally was 1 issuer, 5 tranches and a total of $6.15b.  SSA took advantage pricing 3 taps and a new $3b 3-year from the Kingdom of Belgium bringing the all-in IG day totals to 5 issuers, 9 tranches and $10.09b.  WTD, we’ve now priced 90% of this week’s IG Corporate syndicate midpoint average forecast or $18.375b vs. $20.48b.

Mischler was named an active Co-Manager on today’s Verizon transaction so without further ado let’s get to the deal drill down and diversity and inclusion piece:
“Better Matters!” – Verizon’s Smart and Daring Dip into the DCM on FOMC Rate Decision Day Pays Off Big Time!

 better-matters-verizon-mischler

Today’s lone IG Corporate new issue from Verizon Communications Inc. owned the proverbial leaderboard today announcing a $6.15b five-part 3yr FXD/FRN, 5s, 10s and 30-year Senior Note transaction.  Each tranche was defined as benchmark sized early on.  Looking at the below price evolution across the five issuances, the average spread compression from IPTs to the launch/final pricing was a strong 22.00 bps. Strong demand saw the final cumulative order books close at $29.4b or 4.78x oversubscribed.  Voracious investor appetite for better rated IG corporate credits for more yield and safety drove the spread compression today.

 

VZ Issue IPTs GUIDANCE LAUNCH PRICED Spread
Compression
NICs
(bps)
Trading at
the Break
+/-
3yr FRN 3mL+equiv 3mL+equiv 3mL+37 3mL+37 <20> bps <1> 3mL+36/35 <1>
3yr FXD +75a +60a (+/-5) +55 +55 <20> bps 0 54/53 <1>
5yr +95a +80a (+/-5) +75 +75 <20> bps 0 74/72 <1>
10yr +140a +120a (+/-5) +115 +115 <25> bps <2> 114/112 <1>
30yr +215a +195a (+/-5) +190 +190 <25> bps <2> 189/187 <1>

 

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

 

VZ Issue Tranche Size Final Book
Size
Bid-to-Cover
Rate
3yr FRN $400 $800mm 2x
3yr FXD $1,000 $4.1b 4.1x
5yr $1,000 $6b 6x
10yr $2,250 $9.5b 4.22x
30yr $1,500 $9b 6x

 

In terms of relative value I looked at the outstanding VZ 4.862% due 8/21/2046 that was T+192 pegging concession as negative 2 bps on today’s new 30-year that priced at T+190.
For the 10-year the VZ 3.50% due 11/01/2024 was T+97 pre-announcement or G+107.  Adding 10 bps for the 8s/10s curve gets you to T+117 versus today’s new 10-year pricing at T+115 comes to yet another negative 2 bp concession.
The 5-year comps I used were the VZ 3.45% due 2021 that was T+65 (G+69) and the VZ 3.00% due 11/01/2021 T+84 (G+81). Those two are 8 months apart, so taking an average of G+69 and G+81 is G+75 landing you at a July fair value.  Hence, the 5yr VZ priced flat or without a concession.
Lastly the three-year looked to the VZ 2.55% due 6/17/2019 T+54 bid (G+54) for a 1bp NIC versus today’s new T+55 3-year pricing.

Conclusion, Verizon’s finance and treasury teams should be very happy with how things went on this FOMC Rate Decision day.  Janet Yellen and Company, eat your heart out! The world doesn’t stand still anymore on Rate Day.

Proceeds from today’s transaction will be used for general corporate purposes, including to repay at maturity on September 15, 2016, $2.25 billion aggregate principal amount of its floating rate notes due 2016, plus accrued interest on the notes.

 

Verizon Final Pricing Details

VZ $400mm FRNs due 8/15/2019 @ $100.00 or 3mL+37
VZ $1,000b 1.375% due 8/15/2019 @ $99.991 to yield 1.378% or T+55 MW+10

VZ $1,000b 1.75% due 8/15/2021 @ $99.564 to yield 1.841% or T+75 MW+15

VZ $2,250b 2.625% due 8/15/2026 @$99.745 to yield 2.654% or T+115 MW+20

VZ $1,500b 4.125% due 8/15/2046 @$99.947 to yield 4.128% or T+190 MW+30

 

Verizon Communications Inc’s. Commitment to D&I and Our Nation’s Veterans

 

Verizon is committed to fostering an inclusive environment. They care about diversity in both its employees and its suppliers. Diversity and inclusion is how Verizon achieves success. By celebrating diversity across all spectrums, including but not limited to race, national origin, religion, gender, sexual orientation, gender identity, disability, veteran/military status, and age, Team Verizon is a stronger company and culture that takes pride in its talented and diverse team of people who focus on its customers, every day. Their combined intelligence, spirit and creativity make Verizon a great place to work, learn and grow. But Verizon’s commitment to our nation’s veterans – those who are prepared to make the ultimate sacrifice so that we can all do the things that we do – is something that sets Verizon apart with Team Mischler, the nation’s oldest Service Disabled Veteran broker-dealer.

 

Just let these facts speak for themselves:

  • Verizon employs nearly 13,000 veterans
  • The Military Times Best for Vets: Employers 2015 rankings voted Verizon as the Number 1 company in the United States for veterans.
  • Verizon is ranked as a top military spouse-friendly company by Military Spouse magazine
  • Verizon was named one of U.S. Veteran Magazine’s “Top Veteran-Friendly Companies.”

With a clear focus on and concerted effort toward a smooth transition for our veterans from the military to civilian life, Verizon offers career services to veterans and their spouses.  VZ provides mentoring programs, hosts career fairs and extends discounts to veterans and their families.  The Company also offers benefits like its Enhanced Military Leave program and flexibility during deployments and relocations. But Verizon does so much more.  It offers guidance on constructing a military background into a civilian resume on its website through helpful advice.  It includes a Q&A that helps match a veteran’s military role with corresponding civilian functions and offers counsel on how to convert a military experience into civilian responsibilities.
Verizon gets it!  They do not hire veterans because it’s the right thing to do rather they do it because veteran leadership and skill sets make it a better company.  Evan Guzman, Verizon’s head of military programs said “there is rarely a position within the military that we can’t find a place for within Verizon.  85% of military jobs have a direct civilian counterpart at Verizon.” Heck, Verizon’s military recruitment team boasts seven full-time dedicated employees!  I think you are beginning to get the picture that Verizon is yet another great story not only about making bold and wise leading funding decisions in our Debt Capital Markets like today but they are also leading a corporate charge in America to welcome our nation’s heroes when they come back home.  Yet another great story about Corporate America that should be told to Main Street.  The more people know, the more they’ll have confidence in the free market enterprise system.  Kudos to team Verizon!

It’s one thing to be on a Verizon transaction but quite another to extoll just how significantly their veteran give-back initiatives permeate their corporate DNA.  So, please indulge me as I’d like to call out those seven fully dedicated employees who work to give our veterans a firm footing upon homecoming:

 

  • Evan Guzman, Head of Military Programs & Veteran Affairs
  • Tommy Jones, Program Manager Veteran Recruitment & Operations
  • Rodney Greenwood, Military Recruiter – Central Region
  • Nick Relacion, Military Recruiter – Eastern Region
  • Joseph Rocha – Military Recruiter – Western Region
  • Brittney Becker – Team Coordinator
  • Monica Orecchio – Military Spouse Recruiter.

There you see that! Telling the story AND introducing the people.  It’s not just about subscribers and quality cable services rather it’s a corporate culture with a focus on social responsibility.
In conclusion, there’s no better way to end this piece than to employ Verizon’s corporate slogan – “Better Matters!”

 
New Lowest 6 “BBB”-Rated IG Corporate Coupon in History!

Verizon’s 10-year tranche set a new record as the all-time lowest 6 “BBB”-rated coupon in DCM history!  That’s right the 10-yr 2.625% coupon now sits atop the all-time lowest 10-year coupons in that category.  Formerly both the Republic of Colombia and Brazil were tied at 2.625% BUT they are both sovereign credits NOT IG Corporates.  Federal Express, Dr. Pepper, Ameren Corp. and PPG Industries were officially bounced down one notch in a four-way tie for second at 2.70%. It was our immense pleasure to relay that news to Verizon which couldn’t have happened with a request for a call.

Shout outs along with Mischler’s five-star salute go to each of Verizon Treasury team leaders. We appreciate that you selected Mischler Financial Group from among the diversity firms you have to choose from and to provide us the opportunity to prove our capabilities.
Thanks also to the “Golden Boys” at GS Syndicate who we liaised with on today’s 5-part book builds.  That begins with the maestro himself Mr. Jonny Fine. What else is there left to say about the guy who heads Syndicate, is a Managing Director and Goldman Partner as well as a voting member of Goldman’s all-important Finance Committee.  Oh, he also guides the diversity mandate at team Goldman.  Goldman’s mandate is piloted by Fine for execution and he consistently does that through his stellar team beginning with his newest hire, the polished pro, John Sales, who was brought on board the Golden crew from Barclays Syndicate.

 

And, a first time and very personal shout out from the guy-in-the-corner to our new veteran hire Jonathan Herrick.  He’s been with us now for two months and I have to say each and every day I am grateful to see how this military veteran seizes the opportunity to focus, learn and deliver each and every day.  He’s been a great addition to our special operations unit here as our desk analyst and take it from me folks, he knows what work ethic means.  After three tours fighting for us in the danger, dust and dirt of Afghanistan, Jon Herrick has wasted no time becoming a stalwart member of Mischler’s capital markets crew.

 

Global Market Recap

 

  • FOMC Statement: A little give & take but the bottom line is the FOMC is on hold.
  • S. Treasuries – Strong session for USTs led by the 5yr.
  • Overseas Bonds – Gilts, Bunds & JGB’s (not the 30yr) rallied.
  • 3mth Libor – Set at highest yield since May 2009 (0.75150%).
  • Stocks – NASDAQ rallied and the Dow and S&P were little changed.
  • Overseas Stocks – Europe & Japan rallied while Chinese stocks had a poor day.
  • Economic – U.S. data was slightly weaker but the focus was on the FOMC Statement.
  • Currencies – USD better vs. the Yen, CAC & AUD but lost ground vs. Euro & Pound.
  • USD – Closed mixed vs. the Big 5 but did lose ground after the FOMC Statement.
  • Commodities – CRB, crude oil (low since April) & copper down while gold & silver rallied.
  • CDX IG: -0.84 to 73.74
  • CDX HY: -1.55 to 400.00
  • CDX EM: -1.29 to 259.84

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

-Tony Farren

 

IG Primary Market Talking Points

 

  • The average spread compression from IPTs thru the launch/final pricing of today’s 5 IG Corporate new issues only was 22.00 bps.

 

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

 

IG Corporate New Issuance This Week
7/25-7/29
vs. Current
WTD – $18.375b
July 2016 vs. Current
MTD – $87.125b
Low-End Avg. $19.39b 94.77% $90.09b 96.71%
Midpoint Avg. $20.48b 89.72% $91.17b 95.56%
High-End Avg. $21.57b 85.19% $92.26b 94.43%
The Low $10b 183.75% $60b 145.21%
The High $30b 61.25% $125b 69.70%

 

 

Have a great evening!
Ron

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

NICs, Bid-to-Covers, Tenors and Sizes

 

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

KEY IG CORPORATE
NEW ISSUE DRIVERS
MON.
7/25
TUES.
7/26
AVERAGES
WEEK 7/18
AVERAGES
WEEK 7/11
AVERAGES
WEEK 7/04
AVERAGES
WEEK 6/27
New Issue Concessions 2.89 bps 0.90 bps 3.95 bps 0.82 bps 0.73 bps 10.67 bps
Oversubscription Rates 3.57x 2.61x 3.42x 4.73x 3.82x 4.05x
Tenors 10.90 yrs 24.67 yrs 7.95 yrs 9.58 yrs 9.72 yrs 10.87 yrs
Tranche Sizes $710mm $850mm $1,482mm $887mm $770mm $1,229mm

 

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.

Please note that OM Asset Management plc tapped it’s 10-year for an additional $25mm yesterday, July 26th.  It is included below for informational purposes only.  The volume tables near page bottom have been updated to reflect it.  Thanks! -RQ

 

IG

Issuer Ratings Coupon Maturity Size IPTs GUIDANCE LAUNCH PRICED LEADS
Verizon Comm. Inc. Baa1/A- FRN 8/15/2019 400 3mL+equiv 3mL+equiv 3mL+37 3mL+37 BAML/DB/GS/MIZ(a) +2(p)
Verizon Comm. Inc. Baa1/A- 1.375% 8/15/2019 1,000 +75a +60a (+/-5) +55 +55 BAML/DB/GS/MIZ(a) +2(p)
Verizon Comm. Inc. Baa1/A- 1.75% 8/15/2021 1,000 +95a +80a (+/-5) +75 +75 BAML/DB/GS/MIZ(a) +2(p)
Verizon Comm. Inc. Baa1/A- 2.625% 8/15/2026 2,250 +140a +120a (+/-5) +115 +115 BAML/DB/GS/MIZ(a) +2(p)
Verizon Comm. Inc. Baa1/A- 4.125% 8/15/2046 1,500 +215a +195a (+/-5) +190 +190 BAML/DB/GS/MIZ(a) +2(p)
OM Asset Management plc
(tap) on 7/26
New total: $275mm
Baa2/BBB- 4.80% 7/27/2026 25 N/A N/A N/A T+325 BAML/CITI/RBC/WFS

 

SSA

Issuer Ratings Coupon Maturity Size IPTs GUIDANCE LAUNCH PRICED LEADS
IFC (tap)
New total: $2,000mm
Aaa/AAA FRN 12/15/2020 190 3mL+13a N/A N/A 3mL+13 BARC/HSBC
NWB (tap)
New total: $1,250mm
Aaa/AAA 1.50% 4/16/2018 500 MS+10a MS+10a N/A +29.6 BAML/DB/TD
Rentenbank (tap)
New total: $850mm
Aaa/AAA FRN 1/12/2022 250 N/A N/A 3mL+27 3mL+27 NOM/RABO/RBC
The Kingdom of Belgium Aa3/AA 1.125% 8/03/2019 3,000 MS+16a MS+15a MS+15 33.8 BARC/CITI/SCOT

 

Lipper Report/Fund Flows – Week ending July 20th     

 

  • For the week ended July 20th, Lipper U.S. Fund Flows reported an inflow of $894.421m into Corporate Investment Grade Funds (2016 YTD net inflow of $19.323b) and a net inflow of $321.724m into High Yield Funds – the second highest ever – (2016 YTD net inflow of $9.872b).
  • Over the same period, Lipper reported a net inflow of $68.984m from Loan Participation Funds (2016 YTD net outflow of $5.373b).
  • Emerging Market debt funds reported a net inflow of $918.406m (2016 YTD inflow of $2.335b).

 

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 34.25 bps wider versus their post-Crisis lows!

 

ASSET CLASS 7/26 7/25 7/22 7/21 7/20 7/19 7/18 7/15 7/14 7/13 1-Day Change 10-Day Trend PC
low
IG Avg. 147 146 147 148 148 148 149 149 150 152 +1 <5> 106
“AAA” 80 79 80 80 79 80 79 79 80 80 +1 0 50
“AA” 85 85 84 85 85 86 86 86 86 88 0 <3> 63
“A” 115 115 115 116 116 117 117 117 118 120 0 <5> 81
“BBB” 193 192 193 194 194 195 196 196 197 200 +1 <7> 142
IG vs. HY 398 393 392 393 392 397 395 393 394 406 +5 <8> 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 43.79 bps wider versus their post-Crisis lows!

                                    

INDUSTRY 7/26 7/25 7/22 7/21 7/20 7/19 7/18 7/15 7/14 7/13 1-Day Change 10-Day Trend PC
low
Automotive 118 118 120 121 122 122 122 123 124 126 0 <8> 67
Banking 137 137 139 140 140 141 140 140 141 143 0 <6> 98
Basic Industry 196 195 195 196 197 198 198 199 202 204 +1 <8> 143
Cap Goods 107 107 107 107 107 108 108 109 109 111 0 <4> 84
Cons. Prod. 110 110 110 110 110 110 110 110 111 112 0 <2> 85
Energy 201 198 197 198 198 199 201 201 203 207 +3 <6> 133
Financials 172 174 176 177 177 178 179 180 181 184 <2> <12> 97
Healthcare 117 116 116 117 117 118 119 119 121 122 +1 <5> 83
Industrials 148 147 147 148 148 149 149 150 151 153 +1 <5> 109
Insurance 172 172 173 174 174 175 175 176 177 179 0 <7> 120
Leisure 152 153 153 154 153 154 154 155 155 156 <1> <4> 115
Media 171 170 170 172 173 173 173 174 174 176 +1 <5> 113
Real Estate 162 162 163 164 164 164 165 166 166 167 0 <5> 112
Retail 118 117 117 118 118 118 119 119 120 121 +1 <3> 92
Services 142 143 144 144 144 145 146 146 146 147 <1> <5> 120
Technology 131 131 131 131 131 132 131 131 132 134 0 <3> 76
Telecom 169 168 167 168 169 169 168 168 168 169 +1 0 122
Transportation 144 144 145 145 145 146 146 147 148 149 0 <5> 109
Utility 147 147 147 148 148 149 149 149 150 151 0 <4> 104

 

IG Secondary Trading Lab

 

  • BAML’s IG Master Index widened 1 bp to +147 versus +146.  +106 represents the post-Crisis low dating back to July 2007.
  • Standard & Poor’s Global Fixed Income Research widened 2 bps to +196 versus +194.  The +140 reached on July 30th 2014 represents the post-Crisis low.
  • Investment grade corporate bond trading posted a final Trace count of $16.8b on Tuesday versus $14.7b Monday and $18.0b the previous Tuesday.
  • The 10-DMA stands at $15.8b.
  • The top three most actively traded IG-rated issues were led by ABIBB 3.65% due 2/01/2026 with client sales twice that of purchases.
  • WFC 2.10% due 7/26/2021 finished second with client and affiliate flows representing 90% of the volume.
  • COF 3.75% due 7/28/2026 placed third with client sales four-times purchases.

 

New Issue Pipeline

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

 

  • Adani Transmission Limited (Baa3/BBB-) mandated Barclays, DBS Bank and Standard Chartered Bank as Joint Global Coordinators and those same three banks as well as Emirates NBD Capital, MUFG, Nomura and Societe Generale CIB as joint book runners and leads for its upcoming dollar-denominated 144a/REGS 10-year Senior Secured Notes new issue.
  • The Government of Trinidad & Tobago (Baa3/A-) mandated Deutsche Bank and First Citizens Bank to arrange fixed income investor meetings that kicked off Monday, July 25th in preparation for a dollar-denominated 144a/REGS offering that could soon follow their conclusion.  The meetings took place in L.A. and London on the 25th, New York and London on Tuesday the 26th and wrapped up in New York and Boston on the 27th.
  • Empresa Nacional de Petroleo or “ENAP” (Baa3/BBB-), the state-owned Chilean hydrocarbon company mandated Citigroup and J.P. Morgan to arrange fixed income investor meetings in the U.S., Chile and Europe that began on Monday, July 25th in preparation for a 10-year dollar-denominated 144a/REGS Senior Unsecured Notes new issue that could soon follow its conclusion.
  • The Export Bank of India (Baa3/BBB-) mandated Bank of America/Merrill Lynch, Barclays, Citigroup, J.P. Morgan and Standard Chartered Bank as joint leads and book runners to arrange fixed income investor meetings in the U.S., Asia and Europe that began on Thursday, July 21st in preparation for a 144a/REGS Senior Notes new issue that could soon follow its conclusion.
  • Woori Bank (A2/A-) hired Bank of America/Merrill Lynch, Citigroup, Commerzbank, Credit Agricole CIB, HSBC and Nomura to arrange fixed income investor meetings in the U.S., Europe and Asia that began on Monday, July 11th and continued thru Wednesday, July 20th.  Last May, Woori set up a $7b GMTN program.
  • National Grid plc (Baa1/A-) asked J.P. Morgan to arrange fixed income investor meetings that took place on Wednesday, June 1st making stops in Boston, New York and concluded on June 3rd in New Jersey and Philadelphia.  The Company’s Group and U.S. Treasurers were in attendance.

 

M&A Pipeline – $212.62 Billion in Cumulative Enterprise Value!

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

 

  • 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.
  • ITC Holdings Corp. announced on Thursday, June 23rd that its shareholders approved the purchase by Fortis Inc. (A-/S&P). Fortis Inc. (A-/S&P) announced on Tuesday, February 9th that it would acquire ITC Holdings for $11.3b in a cash and stock transaction.  The terms stipulate that ITC shareholders will receive $22.57 in cash and .7520 Fortis shares per ITC share. Fortis will also assume approx. $4.4bn of consolidated ITC indebtedness. The cash portion of the deal will be financed through the issuance of about $2bn of Fortis debt and the sale of up to 19.9% of ITC to one or more infrastructure-focused minority investors. Fortis expects to maintain a solid IG credit rating. Fortis expects to raise $2bn of new debt to fund the deal that is expected to close sometime in late 2016.
  • 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.
  • Microsoft (Aaa/AAA) and LinkedIn Corp. (BB+/NR) announced on June 13th that they have entered into a definitive agreement in which MSFT will purchase LKND for $196 per share for a total transaction valued at $26.2b.  The deal is expected to close sometime in 2016 and pending LinkedIn shareholder approval.
  • 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.
  • Shire PLC announced in January 2016 that it will acquire Baxalta Inc. (Baa2/BBB) for approximately $32.2 billion in cash and stock.  Shire secured an $18b bank facility to finance the cash portion and will refinance it in debt. The deal creates the single largest maker of rare disease drugs in the world. This deal could come at any time.
  • Air Liquide SA (NR/A+) announced it has completed the acquisition of Airgas Inc. (Baa2/BBB).  Air Liquide announced on November 17th that it would acquire Airgas Inc. (Baa2/BBB) for $13.4b in which Airgas will be a wholly-owned subsidiary of its new parent. The transaction will be financed bridge loans that are expected to be refinanced through equity, Euro cash and euro as well as dollar-denominated debt issuance.  The deal involves $12b of a bridge facility thru Barclays and BNP Paribas.  The bridge will be refinanced post-closing through a combination U.S. dollar-denominated and Euro bond issuances.
  • Exelon Corp. (Baa2/BBB-) debt financing plans remaining for 2016 include, $750 million at Baltimore Gas & Electric (A3/A-) ($300 million maturing on October 1) and $450 million at PECO Energy (Aa3/A-) ($300 million maturing on October 15).
  • 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.
  • Dominion Resources Inc. “D” (Baa2/BBB+) announced on Monday, February 1st, that it will acquire Questar Corporation “STR” (A-/S&P) for $4.4b in cash.  “D” agreed to pay “STR” shareholders $25 per share and assume its debt. The deal will be funded with equity, convertibles and debt and is expected to close by the end of 2016. RBC and Mizuho are providing financing and acting as financial advisors to Dominion.  The deal is subject to shareholder and regulatory approvals.
  • This morning in Charlotte, shareholders of Piedmont Natural Gas (A2/A) voted to approve the Company’s acquisition by Duke Energy (A3/BBB+).  66.8% of voting shares supported the acquisition.  In late October Duke Energy, (A3/BBB+) the nation’s largest utility announced that it will buy Piedmont Natural Gas (A2/A) for $4.9b in cash.  Both companies are partners in the $5b Atlantic Coast Pipeline.  The purchase, pending regulatory approval, will add one million new rate payers to Duke Energy’s customer base.  The deal is expected to close as early as July.
  • UPS (Aa3/A+) announced in July 2015 that it entered into a definitive purchase agreement to acquire Coyote Logistics, a technology-driven, non-asset based truckload freight brokerage company for $1.8b from Warburg Pincus.  The transaction will be financed with available cash resources and through existing and new debt arrangements and is expected to close within 30 days.
  • 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 Pte. Ltd. for $1.275b. Funding will be made thru cash and debt and is expected to close by the end of 2015.

 

New Issue Volume

 

Index Open Current Change
IG26 74.577 73.45 <1.127>
HV26 192.545 194.975 2.43
VIX 13.05 12.83 <0.22>
S&P 2,169 2,166 <3>
DOW 18,473 18,472 <1>
 

USD

 

IG Corporates

 

USD

 

Total IG (+ SSA)

DAY: $6.15 bn DAY: $10.09 bn
WTD: $18.375 bn WTD: $23.315 bn
MTD: $87.125 bn MTD: $116.362 bn
YTD: $801.566 bn YTD: $1,034.102 bn

 

Economic Data Releases

 

TODAY’S ECONOMIC DATA PERIOD SURVEYED ESTIMATES ACTUAL NUMBER PRIOR NUMBER PRIOR REVISED
MBA Mortgage Applications July 22 —- <11.2%> <1.3%> —-
Durable Goods Orders June <1.4%> <4.0%> <2.3%> <2.8%>
Durables Ex Transportation June 0.3% <0.5%> <0.3%> <0.4%>
Cap Goods Orders Nondef Ex Air June 0.2% 0.2% <0.4%> <0.5%>
Cap Goods Ship Nondef Ex Air June 0.4% <0.4%> <0.5%> —-
Pending Home Sales MoM June 1.2% 0.2% <3.7%> —-
Pending Home Sales NSA YoY June 3.0% 0.3% 2.4% —-
FOMC Rate Decision (Upper Bound) July 27 0.50% 0.50% 0.50% —-
FOMC Rate Decision (Lower Bound) July 27 0.25% 0.25% 0.25% —-

 

Rates Trading Lab

 

Market’s tone was turned positive post-FOMC. Though the statement was interpreted with more of a hawkish bias, the fact remains that the Fed needs to see all ducks in a line before pulling the next trigger. Foreign markets were better bid all day and we were lagging, so bond bulls are in charge at the moment. Still some hurdles for them and the market, however. 7yr auction tomorrow will be at levels that are currently 8bp richer than the 5yr note that tailed. BOJ looms as well. Nevertheless, I think it will be hard to see higher yields so long as Bunds are bid as they are. Demand for fixed income remains voracious. Today’s $6.15bbn Verizon deal (Mischler was a co-manager) was announced with 3yr IPT of +75, 5yr +95, 10yr +140 and 30yr +215. It priced at 3yr+55, 5yr +75, 10yr+115 and 30yr +190 and was very well oversubscribed. 5y/30y found support at 110bp and I would trade the 110-120bp range we have seen over the past 2 weeks.

-Jim Levenson

 

UST Resistance/Support Table

 

CT3 CT5 CT7 CT10 CT30
RESISTANCE LEVEL 99-30+ 100-13+ 100-217 101-22+ 108-06+
RESISTANCE LEVEL 99-282 100-10 100-14+ 101-17 107-13
RESISTANCE LEVEL 99-26+ 100-07 100-10+ 101-07+ 106-20+
         
SUPPORT LEVEL 99-23+ 100-02 100-04 100-29 105-15+
SUPPORT LEVEL 99-216 99-296 99-30 100-23 104-16+
SUPPORT LEVEL 99-19+ 99-26+ 99-26+ 100-14 104-01+

 

Tomorrow’s Calendar

 

  • China Data: Nothing Scheduled
  • Japan Data: Japan Foreign Bond Buying
  • Australia: Import/Export
  • EU Data: EU-Jul BCI/Conf GE-Jul CPI/Unem
  • S. Data: Claims, Cons Comf.Jun Trade
  • Supply: Italy 5, 7,10y, U.S. 7y
  • Events: Nothing scheduled
  • Speeches: Couere

(more…)

Wells Fargo Delivery: Debt Offering; Mischler Outlook
February 2016      Debt Market Commentary   

Quigley’s Corner 02.26.16 -Wells Fargo Delivery

 

Investment Grade Corporate Debt New Issue Re-CapWells Fargo Rides the Lead

Fed Rate Hike Probability Update

IG Primary Market Talking Points

“The Best and the Brightest” –  Fixed Income Syndicate Forecasts for Next Week 

A Look at a Decade’s Worth of March IG Corporate and SSA Issuance

This Week’s IG New Issues and Where They’re Trading – Tone Improves Considerably

Lipper Report/Fund Flows

IG Secondary Market Trading Lab

Economic Data Reports

Rates Trading Lab

New Issue Pipeline

Investment Grade Credit Spreads (by Industry/Rating)

M&A Pipeline

 

Well Fargo & Co. (NYSE:WFC) made it another active Friday today issuing a two-part $3.75b 5-year FXD/FRN Senior Holdco Notes transaction.  As a result, we eclipsed the midpoint average syndicate forecast for this week by 74% including the high-end call for $35b by 42% or $49.95b in IG Corporate volume.   Next week looks like a blockbuster.  I am taking the highest end of projections and calling for over $40b but why listen to me when you can read all about in the words of the top syndicate desks on Wall Street.  Enjoy today’s Best & Brightest below. Read it, digest it, and bring the game face next week……but first enjoy the weekend.

Fed Rate Hike Probability Update

 

An Unconditional Probability of hiking at the June meeting is now up to 30%; including March it is now up to roughly 50% (FRA/OIS is currently elevated by nearly 4 bps)

The Cumulative Probability of hiking in 2016 is up to 76%. The market is effectively saying that if there is NO March increase, then the question of whether we hike in June is the same thing as going at all in 2016…

The probability of a cut in 2016 is now down to 15%; it was as high as 31% in the last 2 weeks.

 

Above courtesy of Rareview Macro LLC

 

IG Primary Market Talking Points

 

  • Taking a look at the secondary trading performance of this week’s IG and SSA new issues, of the 60 deals that printed, 52 tightened versus NIP for a 75% improvement rate while only 2 widened (3.25%) and 4 were trading flat (6.75%) and 2 were N/A or not available (3.25%).
  • For the week ended February 24th, Lipper U.S. Fund Flows reported an inflow of $141.8m from corporate investment grade funds (2016 YTD net outflow of $5.376bn) and a net inflow of $2.74bn from high yield funds (2016 YTD net outflow of $2.360bn).
  • The average spread compression from IPTs thru the launch/final pricing of today’s 2 IG Corporate-only new issues was 12.50 bps.

 

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

 

IG Corporate New Issuance This Week
2/22-2/26
vs. Current
WTD: $49.95b
February 2016 vs. Current
MTD – $90.225b
Low-End Avg. $27.45b 181.97% $90.9375b 99.22%
Midpoint Avg. $28.70b 174.04% $92.1875b 97.87%
High-End Avg. $29.95b 166.78% $93.4375b 96.56%
The Low $20b 249.75% $60b 150.37%
The High $35b 142.71% $110b 82.02%

 

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

 

I am happy to announce that, once again, the “QC” received unanimous participation from the 23 syndicate desks surveyed in today’s Best & Brightest poll.  The participants include 16 of 2016’s top 17 ranked syndicate desks according to Bloomberg’s U.S. IG U.S. Investment Grade Corporate Bond underwriting league table.  In fact, 22 of today’s desks finished in the top 24 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).  Today’s cumulative underwriting percentage of the participating desks was 77.67% 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!

The question posed to the “Best and the Brightest” early this morning was:

“The IG $ DCM managed to bang out the most prolific Jan/Feb volume in history ($273.2b Corps + SSA).  Impressive!

Not counting today’s WFS two-part, the 51 IG Corporates that priced this week posted the following averages:

  • NICS: 8 .20 bps
  • Oversubscription Rates: 3.37x
  • Tenors: 10.16 yrs
  • Tranche Sizes: $906mm

What are your thoughts for next week AND for March?

……and here are their formidable responses:

(the responses from the 20 fixed income syndicates are available to recipients of the email version of Quigley’s Corner. To be added to the QC DL, please contact Ron Quigley, Managing Director via rquigley@misclerfinancial.com

 

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

Across the past ten years, all-in dollar-denominated IG Corporate plus SSA March new issuance averaged $120.923b.

Over the past five years, all-in IG March new issuance averaged $141.244b.

Over the past three years, all-in IG March issuance has averaged $141.15b.

The past three years of March saw IG Corporate only issuance average $116.35b.

March SSA issuance has averaged $24.80b across the last three years.

 

March
(Year)
All-in IG Issuance (bn) IG Corps
only (bn)
SSA
only (bn)
2015 176.47 143.27 33.2
2014 141.72 121.28 20.44
2013 105.26 84.51 20.75
2012 149.33 123.58 25.75
2011 133.44
2010 116.22
2009 155.85
2008 58.67
2007 100.98
2006 71.29

 

……and here’s how the voting brackets broke-out for next week and March:

 

Next Week March ($)
1: 20-25bb 4: 100b
1: 25b 3: 105b
10: 30b 2: 110b
1: 30-35b 1: 111b
4 :35b 1: 112.5b
3: 35-40b 3: 120b
2: 40b 3: 120b
1: 41b 5: 125b
  1: 125-150b
  1: 135b
  1: 140b

 

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

 

IG Corporate New Issuance Next Week
2/29-3/04
March 2016
Low-End Avg. $32.22b $115.59b
Midpoint Avg. $32.76b $116.13b
High-End Avg. $33.30b $116.67b
The Low $20b $100b
The High $41b $150b

 

 

Have a great weekend!

Ron Quigley

 

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. (more…)

An Upsize Day For Corporate Debt Issuance
February 2016      Debt Market Commentary   

Quigley’s Corner 02.23.16 – $10bil Day with 9 Corporate Debt Issuers

 

Investment Grade Corporate Debt New Issue Re-Cap

Overall Market Recap

IG Primary Market Talking Points – Four Issuers Upsize New Issues on Strong Demand

New Issues Priced

Lipper Fund Flows

IG Secondary Market Trading Lab

Rates Trading Lab

New Corporate Debt Issues Priced

Investment Grade Credit Spreads (by Industry/Rating)

New Issue Pipeline

M&A Pipeline

 

Momentum continued for our IG Corporate primary markets that chalked up their sixth consecutive day of issuance featuring 9 issuers across 12 tranches totaling $10.05b.  SSA assists came in the form of 2 issuers, 3 tranches and an additional $1.1b bringing the all-in IG day total to 10 issuers, 15 tranches and $11.15b. We have now priced 104% of this week’s syndicate midpoint average forecast or $30.00b vs. $28.70b. 4 of todays’ IG Corporates increased (see below Talking Points) while the Kingdom of Bahrain priced its 5- and 10-year taps that were cancelled last Thursday following S&P’s downgrade. 

Overall Market Recap

USTs – Small gains in a whipsaw session.

3mth Libor set at 0.62910% the highest since June 2009.

Stocks – Poor day in the U.S. & Europe. Asia also closed in the red.

Economic – U.S. housing data was positive but consumer confidence was weak.

Germany Economic – Full calendar with mixed data tilted to weaker side.

Currencies – USD had a strong day against the Pound but a poor day vs. the Yen.

Commodities – Crude oil down (no production cuts). Gold rallied & wheat at low since 2010.

CDX IG: +1.16 to 114.65

CDX HY: +8.01 to 547.82

CDX EM: +3.78 to 366.03

 

IG Primary Market Talking Points – Four Issuers Upsize New Issues on Strong Demand

 

Hubbell Inc. (NYSE:HUB.B)grew today’s 10-year Senior Unsecured Notes issuance to $400mm from $300mm launching it at the tightest side of guidance.

Welltower (NYSE:HCN) (formerly Health Care REIT) grew its 10-year Senior Unsecured notes new issue to $700mm from $400mm while also launching it at the tightest side of guidance.

Aon PLC (NYSE:AON) increased today’s short 10-year Senior Notes new issue to $750mm from $500mm. The issue launched at the tightest side of guidance.

Pacific Gas & Electric (NYSE:PCG) upsized today’s 10-year Senior Notes new issue at the launch to $600mm from $500mm and at the tightest side of guidance.

W.R. Berkley Corp. (NYSE:WRB) downsized its new $25 par Subordinated Debentures issue to $100mm from an earlier announced $150mm.

The average spread compression across today’s 12 IG Corporate-only new issues including one IG-rated $25 Sub Deb was 19.27 bps from IPTs to the launch.

 

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

 

IG Corporate New Issuance This Week
2/22-2/26
vs. Current
WTD: $30.00b
February 2016 vs. Current
MTD – $70.275b
Low-End Avg. $27.45b 109.29% $90.9375b 77.28%
Midpoint Avg. $28.70b 104.53% $92.1875b 76.23%
High-End Avg. $29.95b 100.17% $93.4375b 75.21%
The Low $20b 150.00% $60b 117.12%
The High $35b 85.71% $110b 63.89%

 

Have a great evening!

Ron Quigley

 

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. (more…)

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