Quigley’s Corner 03.26.18: Sizing Up CenterPoint Energy Debt Issuance
Investment Grade Corporate Bond New Issue Re-Cap
Today’s IG Primary & Secondary Market Talking Points
Syndicate IG Corporate-only Volume Estimates For This Week and March
Global Market Recap
CenterPoint Energy Resources Corp. Lands on Point with Two-Part 5- and 10-Year Transaction
CenterPoint Energy Resources Corp. – Commitment to Our Nation’s Veterans
The “QC” Geopolitical Risk Monitor
NICs, Bid-to-Covers, Tenors, Sizes and Average Spread Compression from IPTs thru Launches
New Issues Priced
Indexes and New Issue Volume
2018 Lipper Report/Fund Flows – Week ending March 21st
IG Credit Spreads by Rating
IG Credit Spreads by Industry
New Issue Pipeline
M&A Pipeline
Economic Data Releases
Rates Trading Lab
Today the IG dollar DCM hosted 7 issuers across 13 tranches totaling $5.60b. The SSA space was quiet.
Mischler Financial was honored to serve as an active Co-Manager on today’s $600mm two-part transaction for CenterPoint Energy Resources Corp. It is today’s Deal-of-the-Day. But before we get to that deal drill down and the good things that CNP does for our nation’s veterans, let’s first take a look at the recaps.
Here’s a look at the WTD and MTD IG Corporate new issue volume as measured against syndicate desk estimates:
• The IG Corporate WTD total is 37.18% of this week’s syndicate midpoint average forecast or $5.60b vs. $15.06b.
• MTD we’ve priced 85.57% of the syndicate forecast for February IG Corporate new issuance or $114.444b vs. $133.74b.
• There are now 18 issuers in the IG credit pipeline.
Today’s IG Primary & Secondary Market Talking Points
- Allstate Corp. increased its $25 par PerpNC5 non-cumulative Preferred, Series “G” to $500mm from $200mm at the launch and at the tightest side of guidance.
- Valero Energy Partners LP upsized today’s 10-year Senior Notes new issue to $500mm from $400mm at the launch.
- The average spread compression from IPTs and/or guidance thru the launch/final pricing of today’s 12 IG Corporate-only new issues was <12.71> bps.
- BAML’s IG Master Index widened 1 bp to +115 vs. +114. (It’s post-Crisis low is +90 set on 2/01).
- Bloomberg/Barclays US IG Corporate Bond Index OAS widened 1 bp to 1.10 vs. 1.09. (0.85 is its post-Crisis low set on 1/30).
- Standard & Poor’s Investment Grade Composite Spread was unchanged at +147. (+125 represents its post-Crisis low set 2/02).
- Investment grade corporate bond trading posted a final Trace count of $16.4b on Friday versus $20.5b on Thursday and $16.2b the previous Friday.
- The 10-DMA stands at $18.2b.
Syndicate IG Corporate-only Volume Estimates For This Week and March
| IG Corporate New Issuance | This Week 3/26-3/30 |
vs. Current WTD – $5.60b |
March 2018 | vs. Current MTD – $114.444b |
| Low-End Avg. | $14.16b | 39.55% | $133.24b | 85.89% |
| Midpoint Avg. | $15.06b | 37.18% | $133.74b | 85.57% |
| High-End Avg. | $15.96b | 35.09% | $134.24 | 85.25% |
| The High | $10b | 56.00% | $150b | 76.30% |
| The Low | $25b | 22.40% | $100b | 114.44% |
Global Market Recap
- U.S. Treasuries – In the red except the 30yr. UST supply and higher stocks were the catalyst.
- Overseas Bonds – JGB’s, Bonds and Gilts were little changed. Peripherals were mixed.
- 3mth Libor – Set at 2.29496% the highest yield since November 2008.
- Stocks – Huge gains at 3pm.
- Overseas Stocks – Nikkei/HS up. China mixed. Europe traded poorly during NY time.
- Economic – Regional data was mixed.
- Overseas Economic – France’s GDP was solid as expected.
- Currencies – USD was weaker vs. 4 of the Big 5. The DXY Index struggled.
- Commodities – Could not rally despite higher stocks and weaker USD.
- CDX IG: -3.15 to 65.83
- CDX HY: -13.53 to 341.80
- CDX EM: -2.29 to 143.54
- VIX: -3.21 to 21.65
*CDX levels are as of 3:30PM ET today.
-Tony Farren
CenterPoint Energy Resources Corp. Lands on Point with Two-Part 5- and 10-Year Transaction
It was “risk on” this morning with global equity markets well in the black, DOW futures pointing to a +300 point open and the CT10-year at 2.85% Given the very stable backdrop we expected many of last week’s stand downs to announce this morning so, CenterPoint wasted no time to act aggressively being the first IG Corporate to announce thereby taking full advantage of the strong and stable market backdrop. Levels quoted last week for today’s print were still good if not even more stable with the sheer volume of deals expected in this holiday-shortened week. The green light was given and CenterPoint Energy Resources Corp. announced a two-part $600mm “will not grow” SEC-registered Senior Notes transaction comprised of a $300mm 5-year due 4/01/2023 and a $300mm 10-year due 4/01/2028 at 8:20am ET. As mentioned on last week’s due diligence call “tariffs are a benefit to utilities. As one moves onshore to the U.S. whether tariffs or tax reform, it is helpful to CNP’s and any utility’s everyday business.”
When the big book went subject, the guidance call was postponed for an additional 10 minutes to allow for a large Tier I investor to complete their evaluation which was a great recommendation. That extra anchor order helped propel the 5yr order book to launch at the tightest side of guidance on both. Although spread compression was <3> bps on each of the 5s and 10s the issuer did secure tighter funding levels. A good day for CenterPoint, securing their funding needs, a good day for their rate payers and a nice execution on a relatively busy day by the joint leads of Bank of America/Merrill Lynch, Citigroup, Credit Suisse and MUFG.
Now let’s look at two very different approaches to valuation on today’s two-part:
5-year Relative Value – the Centerpoint Resources 4.50% due 1/15/2021 was T+80 this morning (G+87). The 3s/5s curve should be 10 bps getting us to G+97 nailing NIC on today’s new 5-year as flat or “0”. The 5s/10s curve is worth between 15-20 bps, let’s call it 17.5 gets you to T+114.5 pegging NIC on today’s new 10-year as 2.5 bps versus T+117 final pricing.
There is another way to approach fair value. Let’s check out scenario #2:
10-year Fair Value – the outstanding CNP (“CenterPoint Energy Resources Corp.”) 4.10% due 9/01/2047 was T+115 pre-announcement this morning. The 10s/30 curve is worth 15-20 bps so, let’s call it 17.5, pegging fair value as T+97.5 vs. today’s T+117 final pricing for a 19.5 bps NIC. The 5s/10s curve is also worth 15-20 bps so, let’s also take the midpoint of 17.5 bps on that as well. 97.5 <17.5> = T+80 landing concession on the 5-year as 17 bps.
I elect to take the mid-point of the two studies calling NIC on today’s 5-year in scenario one (flat or “0”) and 17bps in the latter. So, 17 / 2 = 8.5 bp NIC on the 5yr tranche.
The 10yr is either 2.5 or 19.5 so add them together to getting 22 bps / 2 = 11 bps NIC.
By no coincidence, the average NIC across every IG Corporate new issue that priced last week was 11.82 bps. So, I’d argue that CNP secured nice executions today in light of the new market norm in here. The deal got done and tomorrow is another day!
Relative value, as they say, is part art and …………part science!
CenterPoint Energy Resources Corp. Deal Dashboard
Use of proceeds from today’s transaction will be used for general corporate purposes, including the repayment of a portion of borrowing under the CenterPoint Energy money pool and commercial paper.
| CNP Issue | RATING | IPTs | GUIDANCE | LAUNCH | PRICED | Spread Compression |
NIC (bps) |
Trading at the Break |
+/- (bps) |
| 5yr FXD | Baa2(s)/A-(s) | +100a | +100a (+/-3) | +97 | +97 | <3> bps | 8.5 | 97/95 | 0 |
| 10yr FXD | Baa2(s)/A-(s) | +120a | +120a (+/-3) | +117 | +117 | <3> bps | 11 | 116/114 | <1> |
………and here’s a snapshot of today’s final CenterPoint Energy Resources Corp. book sizes and oversubscription rates – the measure of investor demand:
Today’s cumulative $600mm order book total finished at $1.4b making the two-part transaction 2.33x-times oversubscribed with each tranche split as follows:
| CNP Issue | Tranche Size | Final Book Size |
Bid-to-Cover Rate |
| 5yr FXD | $300mm | $700mm | 2.33x |
| 10yr FXD | $300mm | $700mm | 2.33x |
Use of proceeds from today’s transaction is for general corporate purposes including prepayment of commercial paper and the money pool.
Final Pricing – CenterPoint Energy Resources Corp.
CNP $300mm 3.55% due 4/01/2023 @ $ @ $99.782 to yield 3.598% or T+97 MW+15
CNP $300mm 4.00% due 4/01/2028 @ $99.942 to yield 4.007% or T+117 MW+20
CenterPoint Energy Resources Corp. – Commitment to Our Nation’s Veterans
A Military-Friendly Employer – Always There
If you’ve served our country in the military, CenterPoint Energy knows that you understand the level of commitment it takes to get the job done which is why the Company developed formidable initiatives for veterans, reservists and those in the transition from military to civilian life. Candidates who have military experience will readily identify with CenterPoint’s corporate core values of safety, integrity, accountability, initiative and respect for fellow employees, customers and the communities that it serves.
Veterans can view “Job Openings” on the company’s website to find out what kind of opportunities CenterPoint Energy currently has available for veterans, reservists and those in the transition from military to civilian life.
Additionally, U. S. Veteran Magazine recently named CenterPoint Energy one of its “Top Veteran-Friendly Companies.” The company was recognized for its hiring practices, as well as participation in military job fairs and accessible hiring practices for those with disabilities.
Mischler Financial also does its part to give back to our veteran community by donating 10% of its profits to heavily vetted military non-profit organizations throughout the year. By selecting Mischler to serve as an active Co-Manager on today’s two-part 5- and 10-year transaction it clearly illustrates CNP’s veteran/diversity initiative at work. The entire team here at Mischler sends its five-star salute to the Treasury/Funding Team at CenterPoint Energy who I worked with today on the transaction specifically Carla, Robert and Erik. You’ve once again helped to move our platform forward in a sustainable way by granting us the opportunity to actively participate in your transaction. We also thank the Captain at the helm of CNP Treasury/Funding – William “Buck” Rogers, Executive Vice President & Chief Financial Officer. Bill is a distinguished graduate of the U.S. Military Academy with a bachelor’s degree in engineering and economics. Prior to his financial career, he served as a captain in the Army Corps of Engineers for five years. During his service in the Army, he was a master parachutist. So, you see, he’s not only a CFO but he really is THE Captain! We appreciate the meaningful way that you included Mischler on all the transaction calls from initial diligence and market update calls last week through today’s bookbuild. It also meant a lot that Treasury/Funding reached out this morning with a number where the Treasury/Funding team could be reached during the offering.
Thank you also to team Citigroup Syndicate’s K.O. – Kevin O’Sullivan, and his support crew. Their data exchanges were seamless and there were constant contact and info flow throughout the book build which I always greatly appreciate from lead left book runners. All three of them were accessible to me, updated me in a timely and efficient way and have always been a pleasure to work with. They are consummate professionals. So, once again Team Citi Syndicate gets an “A+” from this guy!
And of course, a thank you to our formidable high-quality middle markets distribution network. I appreciate the loyalty and patronage of all the accounts that participated today! You know who you are.
The “QC” Geopolitical Risk Monitor
Updates are highlighted and in BOLD print!
| Risk Level/Main Factor | Geopolitical Risks |
| HIGH | · N/A |
| ELEVATED “North Korea” |
· 3/19 – Representatives from the U.S., North and South Korea agreed to meet in Finland to begin talks on the denuclearization of the Korean Peninsula. Sweden meanwhile is involved in talks with NOKO to discuss the fate of three Americans held in the North. In a major global development on 3/14 and following his full court press against North Korea, President Trump said he would agree to meet with NOKO’s dictator Kim Jong Un under the precondition of a total denuclearization of the Korean Peninsula. |
| CAUTION Trade Wars, Trumponomics & The Beltway; BREXIT; Terror |
· 3/23 Trade Wars – China responded to Trump’s planned $50b in tariffs by countering with reciprocal tariffs on 128 U.S. products with more behind that should an agreement not be reached. The PROC also announced it will ease its pace of U.S. Treasury purchases. China owns nearly 20% of all foreign holdings of Treasury securities. Pres. Xi recently had term limits recently lifted. He will now serve for life and so, time is on his side vs. Trump’s 4-year term and elections.
· 3/23 – President Trump replaced national his national Security Advisor H.R. McMaster with John Bolton one day after Trump’s top lawyer John Dowd resigned signaling a more aggressive stance with FBI Director Mueller’s investigation. · 3/19 the U.K. and EU agreed on a transitional BREXIT arrangement, the first big step toward an orderly withdrawal. Agreement was reached on just about all issues though the question of the Irish border remains to be solved. 3/14 – PM Theresa May announced the expulsion of 23 Russian diplomats from U.K. the most since the Cold War in response to Russia’s state attempted murders of a former spy defector and his daughter on U.K. soil. · March 2018 Terror Events and Casualty Total: 86 terrorist attacks; 510 dead; 692 wounded |
| MODERATE China, Russia, Italy & CyberCime |
· 3/19 – China threatened military action if the U.S. goes ahead with its Taiwan Travel Act encouraging high level contact with Taiwanese officials that Pres. Trump signed on Friday 3/16. China considers the island nation a province, the U.S. sees it an independent nation. On 3/11 China’s ruling National People’s Congress voted to lift all Presidential term limits assuring President Xi remains in power for life. He is now as powerful as Mao.
· 3/26 President Trump expelled 60 Russian diplomats/spies from the U.S. in response to Russia’s attempted murder of a former agent and his daughter who were granted asylum in London. Additionally, over 100 Russia spies were sent back to Russia from a coalition of 18 countries. · 3/05 – Italy’s anti-establishment parties gained widespread support in elections. Its center-right coalition has 37%. 5-Star Movement (left) has most single party support (32%). Nationalist Northern League is the dominant conservative party. Both right & left are anti-immigration, anti-austerity and support leaving the EU. Italy will have a hung Parliament, however. The result hurts French/German plan for more EU integration. Italy is the EU’s 3rd largest economy, has the world’s 3rd highest debt-to-GDP ratio at 132.5% and a national debt of $2.8 trillion (equiv.) It’s the EU’s biggest economic risk. Italy’s banking sector holds $220bn of bad loans. · Cyber Crime: Crypto-jacking, PowerShell-based attacks, cybercriminal underground, ransomware, viruses, hacking, worms and malware estimated to cost the world $6 trillion by 2021. Watch Russia’s involvement. |
| MARGINAL | · N/A |
NICs, Bid-to-Covers, Tenors, Sizes and Average Spread Compression from IPTs thru Launches
… and here’s another look at last week’s day-by-day re-cap of key primary market driver averages for IG Corporates only followed by the prior six week’s averages:
| KEY IG CORPORATE NEW ISSUE DRIVERS |
MON. 3/19 |
TUES. 3/20 |
WED. 3/21 |
TH. 3/22 |
FRI. 3/23 |
AVERAGES WEEK 3/19 |
AVERAGES WEEK 3/12 |
AVERAGES WEEK 3/05 |
AVERAGES WEEK 2/26 |
AVERAGES WEEK 2/19 |
AVERAGES WEEK 2/12 |
| New Issue Concessions | 18.75 bps | 12.78 bps | N/A | 15.13 bps | 15.80 bps | N/A | 9.16 bps | 5.05 bps | 5.36 bps | 1.95 bps | 2.62 bps |
| Oversubscription Rates | 2.26x | 2.91x | N/A | 3.42x | 2.86x | N/A | 2.16x | 2.88x | 2.52x | 3.29x | 1.96x |
| Tenors | 10.36 yrs | 16.32 yrs | N/A | 9.58 yrs | 11.82 yrs | N/A | 9.49 yrs | 10.43 yrs | 13.49 yrs | 11.97 yrs | 18.16 yrs |
| Tranche Sizes | $788mm | $1,173mm | N/A | $450mm | $784mm | N/A | $568mm | $1,559mm | $768mm | $626mm | $499mm |
| Avg. Spd. Compression IPTs to Launch |
<10.75> bps | <13.80> bps | N/A | <18.00> bps | <13.78> bps | N/A | <7.92> bps | <15.63> bps | <14.42> bps | <16.46> bps | <12.82> 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 |
| ABB Finance (USA) Inc | A2/A | 2.80% | 4/03/2020 | 300 | +70a | +60a (+/-5) | +55 | +55 | CITI/CS/JPM |
| ABB Finance (USA) Inc. | A2/A | 3.375% | 4/03/2023 | 450 | +85a | +80a (+/-5) | +75 | +75 | CITI/CS/JPM |
| ABB Finance (USA) Inc. | A2/A | 3.80% | 4/03/2028 | 750 | +110-115/+112.5a | +100a (+/-5) | +95 | +95 | CITI/CS/JPM |
| Allstate Corporation | A3/A- | FRN | 3/29/2021 | 250 | 3mL+62.5a | 3mL+45a (+/-2) | 3mL+43 | 3mL+43 | BAML/JPM/MS/WFS |
| Allstate Corporation | A3/A- | FRN | 3/29/2023 | 250 | 3mL+80a | 3mL+65a (+/-2) | 3mL+63 | 3mL+63 | BAML/JPM/MS/WFS |
| Allstate Corporation | Baa3/BBB- | 5.625% | PerpNC5 4/15/2023 |
500 | N/A | 5.625-5.75% 5.6875%a |
5.625% | $25 Pfd | MS (Phys)BAML/UBS/WFS |
| Bell Canada Inc. | Baa1/BBB+ | 4.464% | 4/01/2048 | 750 | +160a | +145a (+/-5) | +140 | +140 | BAML/BARC/CITI/RBC/TD |
| CenterPoint Energy ResourceCorp. | Baa2/A- | 3.55% | 4/01/2023 | 300 | +100a | +100a (+/-3) | +97 | +97 | BAML/CITI/CS/MUFG |
| CenterPoint Energy ResourcesCorp. | Baa2/A- | 4.00% | 4/01/2028 | 300 | +120a | +120a (+/-3) | +117 | +117 | BAML/CITI/CS/MUFG |
| Citizens Bank NA Providence RI |
Baa1/A- | FRN | 3/29/2023 | 250 | 3mL+equiv | 3mL+equiv | 3mL+95 | 3mL+95 | CITI/CS/MS/WFS |
| Citizens Bank NA Providence RI |
Baa1/A- | 3.70% | 3/29/2023 | 500 | +115-120/+117.5a | +110 the # | +110 | +110 | CITI/CS/MS/WFS |
| Dollar General Corp. | Baa2/BBB | 4.125% | 5/01/2028 | 500 | +150a | +135a (+/-5) | +130 | +130 | BAML/GS/WFS |
| Valero Energy Partners LP | Baa3/BBB- | 4.50% | 3/15/2028 | 500 | +180-185/+182.5a | +170 the # | +170 | +170 | BARC/CS/MIZ/MUFG |
Indexes and New Issue Volume
Countable IG volume includes maturities of 18-months and out and IG-rated Preferreds.
*Denotes new high or tight.
Please note that the below levels are as of 2:30pm ET. Thanks! –RQ
| Index | Open | Current | Change | |||
| IG29 | 61.007 | 57.208 | <3.799> | |||
| VIX | 24.87 | 21.03 | <3.84> | |||
| CT10 | 2.814% | 2.853% | 0.039 | |||
| S&P | 2,588 | 2,658 | 70 | |||
| DOW | 23,533 | 24,202 | 669 | |||
| Nasdaq | 6,992 | 7,220 | 228 | |||
| OIL | 65.88 | 65.49 | <0.39> | |||
| GOLD | 1,347 | 1,353 | 6 | |||
| USD | IG Corporates | USD | Total (IG + SSA) | |||
| DAY: | $5.60 bn | DAY: | $5.60 bn | |||
| WTD: | $5.60 bn | WTD: | $5.60 bn | |||
| MTD: | $114.444 bn | MTD: | $133.544 bn | |||
| YTD: | $340.946 bn | YTD: | $441.411 bn | |||
2018 Lipper Report/Fund Flows – Week ending March 21st
- For the week ended March 21st, Lipper U.S. Fund Flows reported a net inflow of $3.484b into Corporate Investment Grade Funds (2018 YTD net inflow of $26.692b) and a net outflow of $1.174b from High Yield Funds (2018 YTD net outflow of $14.889b).
- Over the same period, Lipper reported a net inflow of $513.286m from Loan Participation Funds (2018 YTD net inflow of $2.630b).
- Emerging Market debt funds reported a net inflow of $51.470m(2018 YTD inflow of $2.204b).
IG Credit Spreads by Rating
Above is the opening extract from Quigley’s Corner aka “QC” Monday Mar 26, 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: rkarr@mischlerfinancial.com 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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