Quigley’s Corner 02.15.18 – Exelon Inspires Investment Grade Debt Issuance Case Study
Investment Grade New Issue Re-Cap
Explaining EXC 10bp Spread Differential
Today’s IG Primary & Secondary Market Talking Points
Syndicate IG Corporate-only Volume Estimates For This Week and February
Global Market Recap
The “QC” Geopolitical Risk Monitor
NICs, Bid-to-Covers, Tenors, Sizes and Average Spread Compression from IPTs thru Launches
The “QC” Geopolitical Risk Monitor
New Issues Priced
Indexes and New Issue Volume
Lipper Report/Fund Flows – Week ending February 7th
IG Credit Spreads by Rating
IG Credit Spreads by Industry
New Issue Pipeline
M&A Pipeline Highlights
Rates Trading Lab
Economic Data Releases
Tomorrow’s Calendar
Investment Grade New Issue Re-Cap – Better Clearing Levels
Today the IG dollar DCM hosted 3 issuers across 8 tranches totalling $4.575b. The SSA space was inactive today and with nothing slated.
Here’s a look at MTD IG Corporate new issue volume as measured against syndicate desk estimates:
- The IG Corporate WTD total is 50.79% of this week’s syndicate midpoint average forecast or $9.477b vs. $18.66b.
- MTD we’ve priced 47.28% of the syndicate forecast for February IG Corporate new issuance or $42.067b vs. $88.98b.
- There are now 6 issuers in the IG credit pipeline.
At the Crossroads of Art & Science: EXC-plaining a 10 bp Spread Differential
Last evening I wrote a bit about Exelon’s $800mm CoMed 30-year Global Secured FMBs rated A1/A-/A that priced at T+85 on Monday that printed with a 7 bp NIC. The comp used for the relative was the outstanding CoMed 3.75%s due 8/2047 that were T+78 pre-announcement pegging NIC as 7 bps. The order book finished at $1.85b for a 2.31x bid-to-cover rate. Those bonds are T+83 bid this afternoon or 2 bps tighter vs. NIP. Some of the reasons for the 7 bp NIC were:
- It was an $800mm deal size that needed a bit more to clear
- Market volatility/uncertainty
- Exelon has numerous subs that need to issue and we all know that investors have long memories. In other words, do the right thing at an inflection point of sorts in our market and investors will come back to you in spades.
Now let’s fast forward to today, a mere 72 hours later, in which Exelon’s PECO Energy priced a $325mm 30-year that is also a Global Secured FMB rated Aa3/A that priced at T+77. Today’s PECO comp was the outstanding PECO “EXC” 3.70% due 9/2047 that was T+80 pre-announcement nailing NIC on today’s new issue as negative <3> bps. WHOOOOAA! A 10 bp differential between the two and remember as a 30-year there is no curve adjusting and both entities have direct comparables to use for a relative value study. We all know that relative value is part art and part science!
On Monday 2/12 at 10:27am ET, and in the middle of CoMed’s book build, the VIX or “fear factor” was 29.70 versus this morning’s 2/15 opening session level of 18.50 when PECO was announced. That’s a whopping 37.7% drop in the all-important and eagerly watched VIX volatility index……more dramatic supporting evidence for the final spread level.
And guess what? Exelon’s Commonwealth Edison deal on Monday was the first utility to issue since the recent historic market gyrations! That nailed it for me. Ahhhhh! There it is! The search for a resolution in what seemed an illogical endeavor was discovered. It was a combination of many market ingredients including a dramatic VIX and was all about the utility that opened up the issuance doors for the sector. A question begot an answer with myriad moving parts and persistence really does pay off. So, to re-cap:
- EXC’s CoMed deal was an $800mm deal size that needed a bit more to clear
- Market volatility/uncertainty (re: VIX levels and a 37.7% differential between Monday’s pricing and today’s PECO pricing).
- CoMed was the first U.S. IG Utility to print since the historic volatility and equity market gyrations.
- PECO is +76 bid or 1 bp tighter and CoMed is T+83 or 2 bps tighter.
Today’s IG Primary & Secondary Market Talking Points
- The average spread compression from IPTs and/or guidance thru the launch/final pricing of today’s 8 IG Corporate-only new issues was <11.31> bps.
- BAML’s IG Master Index tightened 1 bp to +99 vs. +100. (It’s post-Crisis low is +90 set on 2/01).
- Bloomberg/Barclays US IG Corporate Bond Index OAS tightened 1 bp to 0.94 vs. 0.95. (+85 is its post-Crisis low set on 1/30).
- Standard & Poor’s Investment Grade Composite Spread tightened 2 bps to +133 vs. +135. (+125 represents its post-Crisis low set 2/02).
- Investment grade corporate bond trading posted a final Trace count of $19.7b on Wednesday versus $19b on Tuesday and $22.8b the previous Wednesday.
- The 10-DMA stands at $19.4b.
Syndicate IG Corporate-only Volume Estimates For This Week and February
| IG Corporate New Issuance | This Week 2/12-2/16 |
vs. Current WTD – $9.477b |
February 2018 | vs. Current MTD – $42.067b |
| Low-End Avg. | $17.56mm | 53.97% | $88.28b | 47.65% |
| Midpoint Avg. | $18.66mm | 50.79% | $88.98b | 47.28% |
| High-End Avg. | $19.75mm | 47.98% | $89.68b | 46.91% |
| The Low | $10mm | 94.77% | $70b | 60.10% |
| The High | $26mm | 36.45% | $110b | 38.24% |
Global Market Recap
- U.S. Treasuries – closed mixed with a flatter curve.
- Overseas Bonds – JGB’s mixed and little changed. Europe mixed with no major moves.
- 3mth Libor – Set at 1.87250% the highest since December 2008.
- Stocks – At 3pm stocks had strong gains with the NASDAQ leading the way.
- Overseas Stocks – Nikkei and HS had strong rallies. Europe also closed higher.
- Economic – Higher inflation data with weaker economic data for the 2nd day in a row.
- Overseas Economic – Japan mixed. France unemployment rate improved (big). No inflation in Europe.
- Currencies – The USD struggles continued. DXY Index approaching a 3-year low.
- Commodities – CRB, crude oil and copper up (+ $20 this week) and gold small loss.
- CDX IG: -2.32 to 53.85
- CDX HY: -11.23 to 328.23
- CDX EM: -5.30 to 123.35
- VIX: +0.33 to 19.59
*CDX levels are as of 3:30PM ET today.
-Tony Farren
The “QC” Geopolitical Risk Monitor
Updates are highlighted in BOLD print!
| Risk Level/Main Factor | Geopolitical Risks |
| HIGH + “North Korea” |
· 2/15 – The Seoul Olympics kicked off on Fri. 2/09 and conclude Sun. 2/25. Sources tell me to “watch” mid-March thru April as NOKO will be back to its old tricks and the game will ratchet up with newly announced war games along with a much larger allied force participating together. It’s amazing how the world comes together in a spirit of healthy competition to participate in the Olympics. Events are governed by the standard set of rules and guidelines of each sport. Unfortunately, that’s not how the political world works. When NOKO dictator Kim Jong-Un’s sister, Kim Yo Jong steals the show thanks to an overwhelmingly liberal media at the Seoul Olympics it gives reason to pause. They should be focused on the torture, extermination, enslavement, sexual violence, murder and disappearances that take place every day in North Korean prison camps for starters. We’d all like peace to come to the Korean peninsula but let’s not be naïve. It was nice to see the two Korea’s march under one flag on the opening night of the Olympics but don’t be fooled. 1/25 -North Korea issued a statement encouraging the unification of the Korean peninsula asking all Koreans to “promote contact, travel, co-operation between North and South Korea” and saying it will “smash” all challenges against unification. 1/16 – H.R. McMaster met with Japanese & SOKO security council members concluding recent talks with NOKO are a “diversion.” 1/02 – Kim Jong Un announced, “the entire U.S. territory is within the range of a NOKO nuclear strike.” 11/20 – Pres. Trump announced the U.S. designated NOKO a “state sponsor of terrorism.” |
| ELEVATED “Trumponomics” & The Beltway |
· 2/15 – On 2/12 President Trump broke the GOP trend of fiscal prudence with his $4.4 trillion 2019 budget sent to Congress that is unlikely to be enacted as is. On 2/09 the gov’t. averted a shut-down signing into law along with a $1 trillion spending bill with major hikes to disaster relief, full-year funding for defense, infrastructure and our nation’s opioid crisis. Among major items on Trump’s 2018 agenda – a DACA fix, the Wall, Infrastructure Plan and Welfare Reform. 1/26 – Pres. Trump’s immigration reform plan proposes a DACA fix by offering citizenship to 1.8mm undocumented immigrants brought to the U.S. as children (Dems asked for 800k) in exchange for restrictions on future immigration and a $25b border defense system and wall along the Mexican border. |
| CAUTION German coalition? BREXIT & Terror |
· 2/15 – March 2nd is a key date as Germany’s Social Democrats (Socialist Party) votes to approve or reject the recent grand coalition deal referred to as a “marriage of convenience” with Merkel’s CDU/CSU party to stabilize Europe’s keystone nation and economy. A “no” vote means new elections for the Hinterland and further political tension and turmoil. 2/08 -Angela Merkel sealed a grand coalition deal with the Socialist SPD party but gave up the finance and foreign ministry’s. Many Merkel CDU party members are upset that Wolfgang Schäuble, the longest ever serving German finance minister and a major architect of today’s Eurozone economy is now gone. The Socialist SPD party envisions a United States of Europe by 2025! Germany is the keystone of the EU and 28% of its GDP.
· 2/15 – PM Theresa May finally has cabinet members providing clarity on a post-BREXIT vision noting Boris Johnson’s speech on 2/14. He expressed an unwillingness for the U.K. to be tied down to EU regulation and alignment in lieu of British “choice”; avoided addressing a potential Second Referendum saying “….let’s not go there.” It w/b tumultuous for the U.K. to vote on any deal resultant from EU negotiations. Said U.K. will leave the Customs Union and called for a national debate on the low-skill immigration problem saying the U.K. should focus on the best indigenous talent. Supports stopping payments to the EU budget and total U.K. control of its immigration policy. Wants no EU political integration and a more global U.K. in line with its history. Refers to BREXIT future as more “hope” than “fear”. 1/01 – UK Parliament voted 309-305 requiring separate Act before BREXIT can be implemented dealing PM Theresa May a major setback in negotiations on the EU divorce bill. The U.K. is targeting an “implementation period” of March and completion by October 2018. U.K. withdrawal from the EU takes place in 3/2019. · February 2018 Terror Events and Casualties: 74 terrorist attacks; 180 dead; 453 wounded. |
| MODERATE Italian elections, Spain & Pakistan. |
· 2/15 – Italy’s center-right coalition party is expected to win the March 4th election with its leaders projecting sufficient votes to govern without a second ballot. Silvio Berlusconi, the man behind the Forza Italia Party but banned from serving due to a tax evasion charge, is calling for the EU to devise a Marshall Plan-like approach with MENA nations to help the latter keep their people from flocking to Italy which is choked by over 630,000 immigrants only 5% of which have the legal right to be there as refugees. Matteo Silvani head of the Eurosceptic Lega supports leaving federalized Europe (backed by Germany’s coalition SPD party). Italy has had 65 gov’ts. in 71 years. Unemployment is 10.8%; youth joblessness is 32.2%. Italy is the EU’s 3rd largest economy and has the world’s 3rd highest debt-to-GDP ratio at 132.5%; its national debt is $2.8 trillion (equiv.) It is the EU’s biggest economic risk. Italy’s banking sector holds $220bn of bad loans.
· 2/08 – Friction increased as the U.S. designated 3 Pakistanis as “global terrorists” linked to Al Qaeda, the Afghan Taliban and Lashkar-e Taiba militant groups. 2/06 – The U.S. gov’t said it would consider lifting its security assistance suspension against Pakistan if that nation took immediate action to alleviate U.S. concerns by focusing on all terrorist organizations “without distinction.” On Jan. 4th Pres. Trump suspended security assistance to Pakistan including $2b in defense aid tweeting on Jan. 1 that the U.S. gave it “$33bn in exchange for lies and deceit” while accusing Pakistan of arming and funding terrorists against U.S. troops. · 2/10 – Elsa Artadi may wind up as Catalonia’s next President with self-exiled leader Carles Puigdemont possibly governing de facto from Brussels. A special council of the republic is being considered although Catalan law must be changed for that accommodation. Harvard graduate Artadi is Puigdemont’s loyal gal Friday. Puigdemont currently still faces arrest for charges of sedition should he return to Spain. |
| MARGINAL 2018 US Recession? Interest rates & U.S. market volatility |
· 2/11 – U.S. equity markets are currently in the midst of a historic, albeit transparent, efficient and healthy market correction. Volatility will continue to be exacerbated by hawkish interest rate outlooks in which UST yields swelled to four-year highs. Fears of increased inflation tied to high deficits and lower taxes have weighed on equity markets wiping out an estimated $5 trillion globally. The U.S. economy is doing well, earnings are positive but a correction leaves more room for stocks to plunge in light of valuations. Fed is forecasting 3 hikes in 2018. (Many forecast four hikes). Should the U.S. see 4 rate hikes in 2018 and 3 more in ’19, without inflation, as some are beginning to forecast, the U.S. would be heading straight into a recession.
· 2/06 – Russian Presidential elections were moved to March 18th by Putin to coincide with 4th anniversary of annexation of Crimea. Vlad Putin’ 87% approval rating effectively assures victory. Question is what happens in the 2024 election? Russian Constitution restricts position to two consecutive terms. Putin got around that issue in 2008 by installing Medvedev with Putin serving as Prime Minister (though he was in control). He could become Speaker of the Duma in 2024 and install someone else and then become President again. At 66 years of age and in good health, expect Putin to be around and in charge for the long haul. · 1/11 – Cybercrime: Crypto-jacking, PowerShell-based attacks, cybercriminal underground, ransomware, viruses, hacking, worms and malware estimated to cost the world $6 trillion by 2021. |
Have a great evening!
Ron Quigley
NICs, Bid-to-Covers, Tenors, Sizes and Average Spread Compression from IPTs thru Launches
Here’s a review of this week’s five key primary market driver averages for IG Corporates only through Wednesday’s session followed by the averages over the prior six weeks:
| KEY IG CORPORATE NEW ISSUE DRIVERS |
MON. 2/12 |
TUES. 2/13 |
WED. 2/14 |
AVERAGES WEEK 2/05 |
AVERAGES WEEK 1/29 |
AVERAGES WEEK 1/22 |
AVERAGES WEEK 1/15 |
AVERAGES WEEK 1/08 |
AVERAGES WEEK 1/01 |
| New Issue Concessions | 3.50 bps | 2.10 bps | N/A | 2.67 bps | <0.13> bps | 0.43 bps | 1.73 bps | <0.725> bps | <0.79> bp |
| Oversubscription Rates | 1.70x | 2.36x | N/A | 4.09x | 2.98x | 2.02x | 2.15x | 3.75x | 2.85x |
| Tenors | 11.50 yrs | 22.57 yrs | N/A | 14.85 yrs | 13.80 yrs | 5.74 yrs | 7.43 yrs | 8.12 yrs | 7.80 yrs |
| Tranche Sizes | $600mm | $357mm | N/A | $823mm | $847mm | $623mm | $1,137mm | $747mm | $787mm |
| Avg. Spd. Compression IPTs to Launch |
<14.25> bps | <14.10> bps | N/A | <17.02> bps | <17.42> bps | <13.87> bps | <14.11> bps | <19.12> bps | <17.01> bps |
New Issues Priced
Today’s recap of visitors to our IG dollar Corporate and SSA DCM:
Please Note: 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 |
| CSX Corp. | Baa1/BBB+ | 3.80% | 3/01/2028 | 800 | +110a | +95a (+/-5) | +90 | +90 | CITI/JPM/MS/UBS |
| CSX Corp. | Baa1/BBB+ | 4.30% | 3/01/2048 | 850 | +130a | +120a (+/-5) | +115 | +115 | CITI/JPM/MS/UBS |
| CSX Corp. | Baa1/BBB+ | 4.65% | 3/01/2068 | 350 | +165-170/+167.5a | +155a (+/-5) | +150 | +150 | CITI/JPM/MS/UBS |
| Daimler Fin. North America | A2/A | FRN | 2/22/2021 | 400 | 3mL+equiv | 3mL+equiv | 3mL+45 | 3mL+45 | BBVA/CITI/HSBC/JPM/MIZ/SG |
| Daimler Fin. North America | A2/A | 3.00% | 2/22/2021 | 550 | +70a | +65 the # | +65 | +65 | BBVA/CITI/HSBC/JPM/MIZ/SG |
| Daimler Fin. North America | A2/A | 3.35% | 2/22/2023 | 675 | +80a | +75 the # | +75 | +75 | BBVA/CITI/HSBC/JPM/MIZ/SG |
| Daimler Fin. North America | A2/A | 3.75% | 2/22/2028 | 625 | +90a | +85 the # | +85 | +85 | BBVA/CITI/HSBC/JPM/MIZ/SG |
| PECO Energy Co. | Aa3/A | 3.90% | 3/01/2048 | 325 | +95a | +80a (+/-3) | +77 | +77 | MIZ/USB/WFS |
Indexes and New Issue Volume
Countable IG volume includes maturities of 18-months and out and IG-rated Preferreds.
*Denotes new high or tight.
| Index | Open | Current | Change | |||
| IG29 | 56.17 | 52.971 | <3.199> | |||
| VIX | 19.26 | 19.13 | <0.13> | |||
| CT10 | 2.903% | *2.910% | 0.007 | |||
| S&P | 2,698 | 2,731 | 33 | |||
| DOW | 24,893 | 25,200 | 307 | |||
| Nasdaq | 7,143 | 7,256 | 113 | |||
| OIL | 60.60 | 61.42 | 0.82 | |||
| GOLD | 1,350 | 1,353 | 3 | |||
| USD | IG Corporates | USD | Total (IG + SSA) | |||
| DAY: | $4.575 bn | DAY: | $4.575 bn | |||
| WTD: | $9.477 bn | WTD: | $13.777 bn | |||
| MTD: | $42.067 bn | MTD: | $60.117 bn | |||
| YTD: | $174.452 bn | YTD: | $247.317 bn | |||
2018 Lipper Report/Fund Flows – Week ending February 7th
- For the week ended February 7th, Lipper U.S. Fund Flows reported an inflow of $4.734b into Corporate Investment Grade Funds (2018 YTD net inflow of $19.478b) and a net outflow of $2.743b from High Yield Funds (2018 YTD net outflow of $5.858b).
- Over the same period, Lipper reported a net inflow of $611.901m from Loan Participation Funds (2018 YTD net inflow of $900.938m).
- Emerging Market debt funds reported a net outflow of $679.846m (2018 YTD inflow of $3.128b).
Above is the opening extract from Quigley’s Corner aka “QC” Thursday February 15 2018 edition distributed via email to institutional investment managers and Fortune Treasury clients of Mischler Financial Group, the investment industry’s oldest minority broker-dealer owned and operated by Service-Disabled Veterans.
Cited by Wall Street Letter in each of 2014, 2015 and 2016 for “Best Research / Broker-Dealer”, the QC is one of three distinctive market comment pieces produced by Mischler Financial Group.The QC is a daily synopsis of everything Syndicate and Secondary as seen from the perch of our fixed income trading and debt capital markets desk and includes a comprehensive “deep dive” with optics on the day’s investment grade corporate debt new issuance and secondary market data encompassing among other items, comparables, investment grade credit spreads, new issue activity, secondary market most active issues, and upcoming pipeline.
To receive Quigley’s Corner, please email: [email protected] or via phone 203.276.6646
*Sources: Bank of America/Merrill Lynch, Bloomberg, Bond Radar, Dow Jones Newswire, IFR, Informa Global Markets, Internal Mischler, LCDNews, Market News International, Prospect News, Standard & Poor’s Ratings Services, S, Thomson Reuters and of course, a career of sources, contacts, movers and shakers from syndicate desks to accounts; from issuers to originators; from academicians to heads of research, and a host of financial journalists, et al.
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