Quigley’s Corner 05.18.18 Investment Grade Debt Market Commentary: Spotlight On Synchrony Bank

Investment Grade New Issue Re-Cap – Synchrony Bank Owns the Friday Leaderboard

Today’s IG Primary & Secondary Market Talking Points

Syndicate IG Corporate-only Volume Estimates For This Week and May

Global Market Recap

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

The “QC” Geopolitical Risk Monitor

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

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

Indexes and New Issue Volume

2018 Lipper Report/Fund Flows – Week ending May 16th

IG Credit Spreads by Rating

IG Credit Spreads by Industry

New Issue Pipeline

M&A Pipeline

Economic Data Releases

Rates Trading Lab

UST Resistance/Support Table

Today Synchrony Bank (wholly-owned subsidiary of Synchrony Financial NYSE:SYF) owned the IG dollar primary market leaderboard with its $750mm 3(a)5 exempt 3-year senior bank notes transaction. What’s more, Mischler Financial, the nation’s oldest Service Disabled Veteran-owned and operated broker dealer was honored to be named as an active 1.00% Co-Manager. Thank you to stalwart Chris Coffey who is no stranger to diversity and inclusion mandates in our DCM. Chris was there from the get-go back in his days at MBNA when during his time he helped steer that issuer to become a founding father of inclusion transactions along with some other large FIGs. That pre-dates Chris’ GECC days! We appreciate SYF’s patronage and our active role today. Thank you as well to both Citigroup and MUFG Syndicate and of course, to the best darn middle markets distribution network on the street for your loyalty and continued belief in and support of the “value-added” proposition. Congrats also to Chris for his first Friday print at SYF and for his efforts in continuing to implement and guide a stellar diversity mandate that saw diversity firms on today’s new 3-year that included a Service Disabled Veteran-owned broker-dealer three African-American-owned BDs a Hispanic-American owned firm, and a Woman-owned firm.

Today’s final Synchrony order book finished at just over $1.8b making the deal 2.40-times oversubscribed.  Concession on today’s deal was negative 2 bps given new 5-year SYF bank paper is +135. Adjusting <35> bps for the 3s/5s curve gets you to +100 against today’s final T+98 pricing pegs NIC as <2> bps.  A nice day for SYF, the leads and congratulations to Chris on a successful first Friday print at Synchrony! Net, net – a VERY GOOD RESULT for all!

Overseas in the EU two new issues were postponed including the first in 2018 for an investment grade rated issuer pointing to investor fatigue following one of the busier weeks of the year. 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 96.86% of this week’s syndicate midpoint average forecast or $32.855b vs. $33.92b.
  • MTD we’ve priced 68.69% of the syndicate forecast for April IG Corporate new issuance or $92.625b vs. $134.84b.
  • There are now 17 issuers in the IG credit pipeline.

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 IG Corporate-only new issue was <14.50> bps.
  • BAML’s IG Master Index was unchanged at +114. (It’s post-Crisis low is +90 set on 2/01).
  • Bloomberg/Barclays US IG Corporate Bond Index OAS widened 1 bp to 1.09 vs. at 1.08.  (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 $19.7b on Thursday versus $20.8b on Wednesday and $19.1b the previous Thursday.
  • The 10-DMA stands at $17.9b.
  • Taking a look at the secondary trading performance of this week’s 43 IG new issues comprised of 38 IG Corporates and 5 SSAs new issues 25 tightened versus NIP for a 58.25% improvement rate, 13 widened  (30.25%) and were flat (11.50%).
  • For the week ended May 16th, Lipper U.S. Fund Flows reported a net inflow of $3.069b into Corporate Investment Grade Funds (2018 YTD net inflow of $40.444b) and a net outflow of $541.871m from High Yield Funds (2018 YTD net outflow of $15.381b).

Syndicate IG Corporate-only Volume Estimates For This Week and May

IG Corporate New Issuance This Week
vs. Current
WTD – $32.855b
May 2018 vs. Current
MTD – $92.625b
Low-End Avg. $32.52b 101.03% $133.64b 69.31%
Midpoint Avg. $33.92b 96.86% $134.84b 68.69%
High-End Avg. $35.32b 93.02% $136.04b 68.09%
The High $20b 164.28% $110b 84.20%
The Low $40b 82.14% $150b 61.75%


Global Market Recap

  • U.S. Treasuries – ended a poor week with a solid rally.
  • Overseas Bonds – JGB’s unchanged. Bunds/Gilts rallied. Peripheral bonds were hit.
  • SOFR – 1.74% FROM 1.75%.
  • 3mth Libor – 2.32938% from 2.33125%.
  • Stocks – Mixed as of 3pm.
  • Overseas Stocks – Asia closed higher. Europe lost ground.
  • Economic – Nothing on the calendar today.
  • Overseas Economic- – Japan CPI was very tame. Europe inflation data MoM was higher.
  • Currencies – DXY Index traded at a YTD high, Euro YTD low and ADXY Index at a YTD low.
  • Commodities – Crude small loss. Gold up and copper down. Wheat saw a big rally.
  • CDX IG: +0.82 to 61.73
  • CDX HY: +1.60 to 340.22
  • CDX EM: +5.30 to 170.73
  • VIX: -0.09 to 13.34

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

-Tony Farren, Managing Director, Rates Trading

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

Taking a look at the secondary trading performance of this week’s 43 IG new issues comprised of 38 IG Corporatesand 5 SSAs new issues 25 tightened versus NIP for a 58.25% improvement rate, 13 widened  (30.25%) and were flat (11.50%).

Issuer Ratings Coupon Maturity Size IPTs GUIDANCE LAUNCH PRICED TRADING
Synchrony Bank BBB/BBB- 3.65% 5/24/2021 750 +112.5a +100a (+/-2) +98 +98 97/96
Charles Schwab Corp. A2/A FRN 5/21/2021 600 3mL+equiv 3mL+equiv 3mL+32 3mL+32 3mL+33/30
Charles Schwab Corp. A2/A 3.25% 5/21/2021 600 +65a +50 the # +50 +50 50/47
Charles Schwab Corp. A2/A 3.85% 5/21/2025 750 +95a +80 the # +80 +80 80/77
Svenska Handelsbanken Aa2/AA FRN 5/24/2021 1,250 3mL+equiv 3mL+47 the # 3mL+47 3mL+47 3mL+44/41
Svenska Handelsbanken Aa2/AA 3.35% 5/24/2021 1,250 +80a +65 the # +65 +65 65/62
Valero Energy Corp. Baa2/BBB 4.35% 6/01/2028 750 +137.5a N/A +125 +125 124/121
Province of New Brunswick Aa2/A+ 3.625% 2/24/2028 500 MS +50a MS +50a MS +50 +53.3 53/52
Harley-Davidson Finc’l Svcs. A3/A FRN 5/1/2020 450 3mL+65a 3mL+53 (+/-3) 3mL+50 3mL+50 3mL+43/41
Harley-Davidson Finc’l Svcs. A3/A 3.55% 5/21/2021 350 +95a +83 (+/-3) +80 +80 79/76
Kommuninvest Aaa/AAA 2.875% 3/01/2021 1,000 MS +8a MS +8 MS +6 +20.7 21/19
Avista Corp. A2/A- 4.35% 6/01/2048 375 +125a +115 the # +115 +115 114/111
Citigroup Inc. Baa1/A FRN 6NC5
1,000 3mL+equiv 3mL+equiv 3mL+102.3 3mL+102.3 3mL+98/94
Citigroup Inc. Baa1/A 4.044% 6NC5
1,250 +115-120/+117.5a +112.5 the # +112.5 +112.5
Citigroup Inc.
(tap) New Total: $3.85b
Baa3/A- 4.45% 9/29/2027 350
+high 160a
+163 the # +163 +163 163/161
Diageo Capital plc A3/A- FRN 5/18/2020 500 3mL+equiv 3mL+equiv 3mL+24 3mL+24 3mL+21/18
Diageo Capital plc A3/A- 3.00% 5/18/2020 500 +60-65/+62.5a +47a (+/-2) +45 +45 40/37
Diageo Capital plc A3/A- 3.50% 9/18/2023 500 +75-80/+77.5a +65a (+/-2) +63 +63 62/59
Diageo Capital plc A3/A- 3.875% 5/18/2028 500 +95-100/+97.5a +87a (+/-2) +85 +85 82/79
Perusahaan Listrik Negara
PT Persero
Baa2/BBB 5.45% 5/21/2028 1,000 5.80%a 5.50% the # 5.50% +241.4 236/232
Perusahaan Listrik Negara
PT Persero
Baa2/BBB 6.15% 5/21/2048 1,000 6.50%a 6.20% the # 6.20% +299.6 292/288
Royal Bank of Scotland Baa3/BBB+ 4.892% 11NC10 F-t-F
1,750 +200a +185a (+/-3) +182 +182
Republic of South Africa Baa3/BB+ 5.875% 6/22/2030 1,400 6.00%a 5.875% the # 5.875% +280.5 285/280
Republic of South Africa Baa3/BB+ 6.30% 6/22/2048 600 6.375%a 6.30% the # 6.30% +310.1 315/312
Swedish Export Credit Corp. Aa1/AA+ 2.875% 5/22/2021 1,000 MS +12a MS +10a (+/-1) MS +9 +24.8 25/24
AEP Texas Inc. Baa1/A- 3.95% 6/01/2028 500 +110a +100-105 +100 +100 96/93
Ameren Illinois Co. A1/A 3.80% 5/15/2028 430 +95a +85a (+/-3) +82 +82 78/75
American Express Co. A3/A FRN 5/17/2021 800 3mL+equiv 3mL+equiv 3mL+52.5 3mL+52.5 3mL+46/
American Express Co. A3/A 3.375% 5/17/2021 1,200 +low 80s/+82.5a +70a (+/-2) +68 +68 68/63
Bank of America Corp. A3/A 3.499% 5/17/2022 2,250 +100a N/A N/A +80
Canadian Pacific Railroad Baa1/BBB+ 4.00% 6/01/2028 500 +120a +105a (+/-3) +102 +102 99/96
Dr. Pepper Snapple/Keurig
Maple Escrow Subsidiary Inc
Baa2/BBB 3.551% 5/25/2021 1,750 +105a +90a (+/-5) +85 +85 83/80
Dr. Pepper Snapple/Keurig
Maple Escrow Subsidiary Inc
Baa2/BBB 4.057% 5/25/2023 2,000 +135a +125a (+/-5) +120 +120 116/114
Dr. Pepper Snapple/Keurig
Maple Escrow Subsidiary Inc
Baa2/BBB 4.417% 5/25/2025 1,000 +160a +150a (+/-5) +145 +145 141/137
Dr. Pepper Snapple/Keurig
Maple Escrow Subsidiary Inc
Baa2/BBB 4.597% 5/25/2028 2,000 +175a +165a (+/-5) +160 +160 162/158
Dr. Pepper Snapple/Keurig
Maple Escrow Subsidiary Inc
Baa2/BBB 4.985% 5/25/2038 500 +205a +190a (+/-5) +185 +185 190/185
Dr. Pepper Snapple/Keurig
Maple Escrow Subsidiary Inc
Baa2/BBB 5.085% 5/25/2048 750 +215a +200a (+/-5) +195 +195 202/197
Fidelity Nat’l. Info. Systems Baa2/BBB 4.25% 5/15/2028 400 +145 +135a (+/ (+/-5)-5) +130 +130 131/127
Fidelity Nat’l. Info. Systems Baa2/BBB 4.75% 5/15/2048 600 +190 +180a (+/-5) +175 +175 178/174
Goldman Sachs Group, Inc. A3/A FRN 8NC7
1,500 3mL+125a 3mL+120a (+/-3) 3mL+117 3mL+117 3mL+121/118
Great-West Lifeco Finance A+/A 4.047% 5/17/2028 300 +130a +110a (+/-5) +105 +105 103/99
Great-West Lifeco Finance A+/A 4.581% 5/17/2048 500 +160a +145 the # +145 +145 143/141
San Diego Gas & Electric Co. Aa2/AA- 4.15% 5/15/2048 400 +110a +105 the # +105 +105 102/100


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

Thanks as always for tuning in to the daily “QC”, enjoy your read in preparation for the week ahead along with my impassioned plea to enjoy a fabulous weekend with you and yours!

Okay, the fixed income syndicate sound test is complete.  I have over 3,500 readers in the audience. Fade out the overture. Lights, camera, action!:

I am happy to announce that the “QC” once again received 100% unanimous participation from all 24 desks surveyed for today’s “Best & Brightest” Syndicate edition!  Thank you to all of them. 21 of today’s respondents are in the top 22 syndicate desks including 21 of the top 24 according to today’s Bloomberg U.S. IG U.S. Investment Grade Corporate Bond underwriting league table.  The 2018 League table can be found on your terminals at “LEAG” + [GO] after which you select (U.S. Investment Grade Corporates).  The participating desks represent 81.00% of all IG dollar-denominated new issue underwriting as of today’s table share percentage which simply means they are 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 are the ones you WANT and NEED to hear from.  It’s a great look at the week ahead.

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

As always “thank you” to all the syndicate desks that participated in today’s survey.  I greatly appreciate your time to contribute and for making this edition of the “QC” among the most widely read! You are helping to promote Mischler’s value-added DCM proposition while adding readership to the “QC” that won Wall Street Letter’s Award as Best Broker Dealer Research in our financial services industry for three consecutive years – 2014, 2015 and 2016!  Syndicate Desks: Please Note that we had a Friday print today from “SYF” so I updated the below survey question data to reflect Synchrony Bank’s 3-year new issue. If you notice any differences that’s why. Thanks! -RQ

As always, before we get to the technical data let’s first review this week’s top geopolitical risk factors:

  • 5/17 – Kim Jong-un warned that the de-nuclearization summit could be compromised due to John Bolton’s paralleling a NOKO-U.S. de-nuke deal with the Libyan “model of nuclear abandonment.” Bolton is highly qualified but needs to tone down and save the rhetoric for if and when needed – not prior to the historic summit.
  • 5/14 – Although Pres. Trump reversed sanctions on China’s ZTE telecom it was done in exchange for China agreeing not to impose tariffs on U.S. agricultural products that had been levied in response to Trump’s earlier steel and aluminum tariffs.
  • 5/14 – Tensions mounted in the Middle East as Israeli troops fired on protesting Palestinians along the fenced Gaza strip killing 55 and wounding over 1,700. More violent and armed men were intermingled with the mostly peaceful Palestinian demonstrators including families with children. Once they burst through fencing Israeli snipers began to shoot into the onrushing crowd. The protest happened to coincide with the opening of the U.S. embassy in Jerusalem leaving friction at its highest level in years in the historic conflict.  
  • 5/16 – U.S. interest rates: The strong U.S. economy is supporting rising UST yields. T2s & 5s reached highs since 2008; CT10 since 2011 and the LB peaked at 3.10% (2015) a higher yield trading band is established. The sensitivity of EM currencies to higher rates is chronic. Combined with their own additional political risks, EM risks falling out of favor as currencies fall out of bed. 
  • 5/17 – Pressure on UK PM Theresa May mounts as Britain’s House of Lords dealt BREXIT its 15th defeat, this time over environmental protections issues by a 54%-46% margin. In addition, friction intensified between supporters of a post-BREXIT customs partnership with the EU vs. resistance by those who support technology to monitor the critical border between Ireland and Northern Ireland.
  • May 2018 Terror Event MTD Casualty Total: 79 terrorist attacks; 618 dead; 781 wounded.
  • 5/17 – Italy’s two ant-establishment parties 5-Star and League plan tough immigration reform, lifting all sanctions against Russia, creating 2 tax brackets of 15 and 20%, dropping a previously increased retirement age and a citizen’s income for the poor. Wishful thinking!

Now let’s take a look at the critical week-on-week primary market stats: 

  • The IG Corporate WTD total stands at $32.855b. We priced $1.065b less than this week’s average midpoint estimate of $33.92b or <3.14%>.
  • MTD we priced 68.69% of the syndicate midpoint forecast for IG Corporate new issuance or $92.625b vs. $134.84b.
  • Entering today’s session, the YTD IG Corporate-only volume is $557.296b vs. the $574.314b YoY which is <$17.018b> or <2.96%> less than a year ago.
  • The all-in or IG Corporate plus SSA YTD volume is $705.361b vs. $717.956b YoY making it  <$12.595b> or <1.75%> less than vs. 2017.

Here are the five key primary market driver averages for the 57 IG Corporate-only deals that priced this week: 

  • NICS:  4.59 bps  
  • Oversubscription Rates: 2.96x
  • Tenors: 10.18 years
  • Tranche Sizes: $842mm
  • Spread Compression from IPTs to the Launch: <15.12> bps

Here’s how this week’s critical primary market data compares against last week’s numbers: 

  • Week on week, average NICs widened 0.49 bps to an average 4.59 bps vs. 4.10 bps across this week’s 43 IG Corporate-only new issues that displayed relative value.
  • Over subscription or bid-to-cover rates, the measure of demand, increased by 0.26x to an average 2.96x vs. 2.70x. 
  • Average tenors extended by 3.14 years to an average 10.18 years vs. 7.04 years.
  • Tranche sizes increased by $37mm to $842mm vs. $805mm last week.
  • Spread compression from IPTs to the launch/final pricing of this week’s 43 IG Corporate-only new issues tightened by 2.21 bps to <15.12> bps vs. <12.91> bps.
  • Standard and Poor’s Investment Grade Composite Spread tightened 1 bps to +147  bps vs. +148 week-on-week. 
  • Bloomberg/Barclays US IG Corporate Bond Index OAS thru this morning tightened 2 bps to 1.09 vs. 1.11 week-on-week.
  • Investment grade corporate bond trading posted a final Trace count of $19.7b on Thursday versus $20.8b on Wednesday and $19.1b the previous Thursday.  
  • The 10-DMA stands at $17.9b.
  • The VIX widened 0.78 or 6.16% to 13.43 at yesterday’s close vs. last Friday’s 12.65 close.
  • Week-on-week, BAML’s IG Master Index tightened 2.00 bps to +114 vs. +116 week-on-week.  
  • Spreads across the four IG asset classes tightened 2.00 bps week-on-week to 18.75 vs. 20.75 bps as measured against its cumulative post-Crisis low.
  • Spreads across the 19 major IG industry sectors tightened 1.89 bps to an average 25.11 vs. 27.00 bps as measured against their average cumulative post-Crisis lows!
  • For the week ended May 16th, Lipper U.S. Fund Flows reported a net inflow of $3.069b into Corporate Investment Grade Funds (2018 YTD net inflow of $40.444b) and a net outflow of $541.871m from High Yield Funds (2018 YTD net outflow of $15.381b).

Entering today’s Friday session here’s a look at this week’s IG issuance volume totals:

  • IG Corps: $32.855b
  • All-in IG (Corps + SSA): $37.355b

And now it’s time for today’s question posed to the senior members of the Industry’s top 24  fixed income syndicate desks: “What are your thoughts and numbers for next week’s IG Corporate new issue volume?”

Please know that on each and every new issue, the guy-in-the-corner is ALWAYS in YOUR corner on deal day! If an issuer asks you who are some of the best diversity firms are, my hope is that you’ll mention Mischler Financial and the guy-in-the-corner.  Our distribution is high quality, prolific and consistent. On deal day, we perform enough to influence your bid-to-cover rates with REAL high quality and unpadded “sticky” investor orders. The “QC” won Wall Street Letter’s Award as Best Broker Dealer Research in our financial services industry for three consecutive years… 2014, 2015 and 2016! But most of all we have a great certification-the nation’s oldest Service Disabled Veteran owned and operated broker dealer.

Wishing you and yours a wonderful weekend!
Ron Quigley, Managing Director, Head of Fixed Income Syndicate


The “Best and the Brightest” in Their Own Words

Above is the opening extract from Quigley’s Corner aka “QC”  Friday May 18, 2018 weekend 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.

Mischler Financial Group’s “U.S. Syndicate Closing Commentary”  is produced daily by Mischler Financial Group. No part of this document may be reproduced in any manner without the permission of Mischler Financial Group. Although the statements of fact have been obtained from and are based upon sources Mischler Financial Group believes reliable, we do not guarantee their accuracy, and any such information may be incomplete.  All opinions and estimates included in this report are subject to change without notice.  This report is for informational purposes and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Veteran-owned broker-dealer Mischler Financial Group, its affiliates and their respective officers, directors, partners and employees, including persons involved in the preparation of this report, may from time to time maintain a long or short position in, or purchase or sell a position in, hold or act as market-makers or advisors or brokers in relation to the securities (or related securities, financial products, options, warrants, rights, or derivatives), of companies mentioned in this report or be represented on the board of such companies. Neither Mischler Financial Group nor any officer or employee of Mischler Financial Group or any affiliate thereof accepts any liability whatsoever for any direct, indirect or consequential damages or losses arising from any use of this report or its contents.