Quigley’s Corner 08.06.18  American Water Works Taps Debt Market and Floats Deal with Diversity & Inclusion Faucet

Investment Grade Corporate Bonds New Issue Re-Cap

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

American Water Deal Dashboard

American Water Works: Diversity and Inclusion Flows From the Top Down

New Issues Priced

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

Indexes and New Issue Volume

Global Market Recap

2018 Lipper Report/Fund Flows – Week ending July 25th

IIG Credit Spreads by Rating

IG Credit Spreads by Industry

New Issue Pipeline

M&A Pipeline

Economic Data Releases

Rates Trading Lab

Tomorrow’s Calendar

QC Geopolitical Risk Monitor

Below is the opening extract from Quigley’s Corner aka “QC”  Monday, Aug 6, 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 primary 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: rquigley@mischlerfinancial.com or via phone 203.276.6646 

Today the IG dollar DCM hosted 11 issuers across 19 tranches totaling $10.95b. The SSA space was quiet.

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 50.53% of this week’s syndicate midpoint average forecast or $10.95b vs. $21.67b.
  • MTD we’ve priced 30.86% of the syndicate forecast for July IG Corporate new issuance or $19.985b vs. $64.75b.
  • There are now 16 issuers in the IG credit pipeline.

Today’s IG Primary & Secondary Market Talking Points

  • Ventas Realty LP upsized today’s 10-year Senior Notes new issue to $750mm from $600mm at the launch and at the tightest side of guidance.
  • The average spread compression from IPTs and/or guidance thru the launch/final pricing of today’s 18 IG Corporate-only new issues was <18.53> bps.
  • Including today’s Prudential $25 par Junior Subordinated Notes transaction spread compression across the 19 IG Corporate new issues was <17.88> bps.
  • BAML’s IG Master Index tightened 1 bp to +115 vs. +116. (It’s post-Crisis low is +90 set on 2/01).
  • Bloomberg/Barclays US IG Corporate Bond Index OAS was unchanged at 1.09. (1.24 represents the high on 6/04; 0.85 is the post-Crisis low set on 1/30).
  • Standard & Poor’s Investment Grade Composite Spread tightened 1 bp to +149 vs. +150. (+125 represents its post-Crisis low set 2/02).
  • Investment grade corporate bond trading posted a final Trace count of $11.9b on Friday versus $17b on Thursday and $13.4b the previous Friday.
  • The 10-DMA stands at $17.9b.

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

IG Corporate New Issuance This Week
8/06-8/10
vs. Current
WTD – $10.95b
August 2018 vs. Current
MTD – $19.985b
Low-End Avg. $20.10b 54.48% $63.88b 31.29%
Midpoint Avg. $21.67b 50.53% $64.75b 30.86%
High-End Avg. $23.23b 47.14% $65.62b 30.46%
The High $25b 43.80% $50b 39.97%
The Low $15b 73.00% $76b 26.30%

 

American Water Deal Dashboard

american-water-works-diversity-inclusion-debt-offering

 

Today Mischler was honored to serve as a passive Co-Manager on American Water’s $1.325b two-part 10- and 30-year Senior Notes transaction.  For relative value we had looked at the following comparables and adjusted for the low dollar price on AWK’s outstanding comps arriving at 2 bps concession per tranche.

AMERICAN WATER (A3/A)
AWK 2.95 09/27  +75   g76     $94
AWK 3.75 09/47  +107           $93

NSTAR ELECTRIC CO (A2/A+)
ES 3.20 05/27     +80   g81     $96
ES 4.40 03/44     +105           $104

CONSOLIDATED EDISON CO NY (A2/A-)
ED 3.80 05/28    +69   g69    $101
ED 3.875 06/47  +112           $95

INDIANA MICHIGAN POWER (A3/A-)
AEP 3.85 05/28    +85   g85       $100
AEP 3.75 07/47    +111              $93

VIRGINIA ELECTRIC & POWER CO (A2/BBB+)
D 3.80 04/28    +84    g84     $100
D 3.80 09/47    +109             $94

Use of proceeds from today’s transaction will be used to lend funds to American Water and its regulated operating subsidiaries; to repay $191.1mm principal amount of the issuer’s 5.62% Senior Notes due 2018 upon maturity on December 21, 2018; to redeem up to $200mm aggregate principal amount of the issuer’s outstanding long-term debt securities due in 2019 and 2022 and which have a weighted-average interest rate of 5.70%; to repay commercial paper obligations of the issuer, including commercial paper incurred to fund in part the acquisition of all of the capital stock of Pivotal Home Solutions Co., and for general corporate purposes.

Here’s a look at price evolution throughout today’s book build followed all the critically important deal information you need and want to know:

AWK Issue RATING IPTs GUIDANCE LAUNCH PRICED Spread
Compression
NIC
(bps)
Trading at
the Break
+/-
(bps)
10yr A3/A +95-100/+97.5a +85a (+/-3) +82 +82 <15.50> bps 2 81/78 <1>
30yr A3/A +125-130/+127.5a +115a (+/-3) +112 +112 <15.50> bps 2 111/108 <1>

 

American Water’s two-part cumulative order book total finished at $3.80b making the $1.325b transaction 2.87-times oversubscribed.

Here’s a look at the book build at the top and where they finished following launching both tranches at the tightest side of respective guidance.

 

AWK Issue Tranche Size Book
at-the-Top
Final Book
Size
Bid-to-Cover
Rate
10yr $625mm $1.8b $1.8b 2.88x
30yr $700mm $2.3b $2.0b 2.86x

 

That’s a very successful outcome!

Final Pricing – American Water

AWK $625mm 3.75% due 9/01/2028 @$99.981 to yield 3.752% or T+82  MWC +15

AWK $700mm 4.20% due 9/01/2048 @$99.946 to yield 4.203% or T+112  MWC +20

 

American Water Works : Diversity and Inclusion

With a history dating back to 1886, American Water Works Company Inc. (NYSE: AWK) is the largest and most geographically diverse U.S. publicly traded water and wastewater utility company. The company employs more than 6,900 dedicated professionals who provide regulated and market-based drinking water, wastewater and other related services to an estimated 15 million people in 46 states and Ontario, Canada. American Water provides safe, clean, affordable and reliable water services to its customers to make sure they keep their lives flowing.

American Water’s workforce reflects the diversity of customers it serves nationwide.  Diversity of ideas, thoughts and experiences is vital to American Water’s culture and the way it does business. Creating an environment where differences are embraced and where every employee feels engaged and included makes everyone safer, stronger and more successful.

American Water encourages, honors and celebrates differences in its employees, including race, gender, spiritual practice, ethnicity, age, nationality, military/veteran status, sexual orientation, physical capabilities, education and personal style to name just a few. Diverse employees make it more successful in serving its very diverse customers across the country; a philosophy and cultural foundation that has been long embraced and advanced by Mischler Financial et al!

American Water wants to foster an environment where its people can work safely, generate great ideas, provide the best customer service, and make a difference in the communities it serves. By cultivating a diverse and inclusive work environment guided by its core values, American Water enables any one person or group to develop the next big idea, delight their customers, grow the company and create a future of success.

There are a host of certifications that fall under the category of diversity aka minority broker-dealers.  This once “cottage industry” among our financial services experienced growing pains over the last three decades as each company attempted to become more of a full service BD.  Each were challenged by capital consistency, value-added distribution propositions, meaningful capital markets coverage, etc. I am, however, happy to say that a group has emerged from those that have raised the bar so to speak in terms of execution and capabilities.  Today, the guy-in-the-corner affirms and commends American Water for inviting a total of 10, yes that’s right T-E-N diversity firms that served as passive Co-Managers on today’s $1.325b two-part transaction.  It’s a privilege and honor to serve American Water and to be recognized among our brethren in the space.

Mischler sends its five-star salute to American Water’s Treasury/Funding Team today’s honored position to serve on your transaction.  Shout outs, however, aren’t only reserved for the Treasury/Funding teams who embrace and apply their internal corporate D&I mandates by including minority-certified broker dealers on their transactions. Please allow me to now send some shout-outs to those nine additional diversity firms who were featured alongside Mischler Financial Group, Inc., our nation’s oldest Service Disabled Veteran owned & operated broker dealer.  Along with Mischler role, it’s reflective of some of the firms getting it right in the space, in their own unique and different way.

In alphabetical order they are:

Blaylock Van, LLC, C.L. King & Associates, Loop Capital Markets,MFR Securities, Inc.,Multi-Bank Securities, Inc.,Ramirez & Co., Inc., Siebert Cisneros Shank & Co., L.L.C., Telsey Advisory Group, The Williams Capital Group, L.P.

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

Issuer Ratings Coupon Maturity Size IPTs GUIDANCE LAUNCH PRICED LEADS
American Water Capital Corp. A3/A 3.75% 9/01/2028 625 +95-100/+97.5a +85a (+/-3) +82 +82 MIZ/MUFG/RBC/TD (a)
BAML/PNC (p)
American Water Capital Corp. A3/A 4.20% 9/01/2048 700 +125-130/+127.5a +115a (+/-3) +112 +112 MIZ/MUFG/RBC/TD (a)
BAML/PNC (p)
Associated Bank NA Baa1/BBB- 3.50% 8/13/2021 300 +100a +90a (+/-2.5) +87.5 +87.5 CITI/RBC
Bank of New York Mellon A/AA- 3.45% 8/11/2023 750 +80a +68a (+/-3) +65 +65 BAML/BNY/BARC/HSBC/WFS
Bank of New York Mellon
(tap) New Total $900mm
A/AA- 3.85% 4/28/2028 400 +90a +78a (+/-3) +75 +75 BAML/BNY/BARC/HSBC/WFS
Discover Bank BBB-/BBB 4.682% 8/09/2028 500 +210a +190a (+/-2.5) +187.5 +187.5 BARC/CITI/RBC
Duke Energy Progress LLC Aa3/A 3.375% 9/01/2023 300 +75a +60a (+/-3) +57 +57 JPM/MIZ/SCOT/STRH
Duke Energy Progress LLC Aa3/A 3.70% 9/01/2028 500 +95a +80a (+/-3) +77 +77 JPM/MIZ/SCOT/STRH
Ford Motor Credit Co. LLC Baa2/BBB FRN 10/12/2021 500 3mL+equiv 3mL+equiv 3mL+88 3mL+88 CS/CACIB/GS/HSBC (a) + 3 (p)
Ford Motor Credit Co. LLC Baa2/BBB 3.813% 10/12/2021 1,150 +130a +110a (+/-2) +108 +108 CS/CACIB/GS/HSBC (a) + 3 (p)
Ford Motor Credit Co. LLC Baa2/BBB 4.687% 6/09/2025 600 +200a +185a (+/-5) +180 +180 CS/CACIB/GS/HSBC (a) + 3 (p)
Indiana Michigan Power Co. A2/A- 4.25% 8/15/2048 475 +135a +125a (+/-5) +120 +120 BNY/CACIB/CS/PNC
Intercontinental Exchange A2/A 3.45% 9/21/2023 400 +85a +70a (+/-5) +65 +65 BAML/MUFG/WFS
Intercontinental Exchange A2/A 3.75% 9/21/2028 600 +115a +95a (+/-5) +90 +90 BAML/MUFG/WFS
Intercontinental Exchange A2/A 4.25% 9/21/2048 1,250 +145a +125a (+/-5) +120 +120 BAML/MUFG/WFS
PACCAR Financial Corp. A1/A+ 3.15% 8/09/2021 350 +60a +45a (+/-2) +43 +43 CITI/LLOYD/RBC/USB
PACCAR Financial Corp. A1/A+ 3.40% 8/09/2023 300 +75a +62a (+/-2) +60 +60 CITI/LLOYD/RBC/USB
Prudential Financial, Inc. Baa2/BBB+ 5.625% 40NC5
8/15/2058
500 5.625-5.75%
5.6875%a
5.625 the # 5.625% $25 par
Jr. Subs.
BAML/MS/UBS/WFS
Ventas Realty Baa1/BBB+ 4.40% 1/15/2029 750 +165-170/+167.5a +150a (+/-3) +147 +147 MIZ/MS/TD/WFS

…..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.
7/30
TUES.
7/31
WED.
8/01
TH.
8/02
FRI.
8/03
AVERAGES
WEEK 7/30
AVERAGES
WEEK 7/23
AVERAGES
WEEK 7/16
AVERAGES
WEEK 7/09
AVERAGES
WEEK 7/02
AVERAGES
WEEK 6/25
New Issue Concessions <4.63> bps 2.00 bps 0.00 bps/flat 4.67 bps N/A <1.06> bps 1.50 bps 3.90 bps 3.45 bps No Issuance 9.87 bps
Oversubscription Rates 6.02x 1.91x 3.18x 3.55x N/A 4.29x 3.40x 2.33x 2.31x No Issuance 2.03x
Tenors 24.63 yrs 6.67 yrs 3.00 yrs 7.13 yrs N/A 13.33 yrs 9.00 yrs 7.73 yrs 9.24 yrs No Issuance 8.99 yrs
Tranche Sizes $369mm $950mm $450mm $1,017mm N/A $706mm $601mm $1,031mm $693mm No Issuance $504mm
Avg. Spd. Compression
IPTs to Launch
<21.25> bps <18.33> bps <12.50> bps <15.72> bps N/A <17.89> bps <16.89> bps <13.79> bps <13.39> bps No Issuance <6.58> bps

 

New Issues Priced

Above is the opening extract from Quigley’s Corner aka “QC”  Monday, Aug 6, 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 primary 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: rquigley@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, Stone & McCarthy Research, 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.