Duke Energy Progress LLC $700m Debt Offering Counts Diversity-Certified Mischler Financial Group Among Deal’s Co-Managers; Investment Grade New Issues Make New All-Time Record
Below is excerpted from Aug 17 2020 edition of Quigley’s Corner, Mischler Financial Group’s daily debt market coverage and commentary distributed to Fortune 500 treasury teams, leading institutional investors, and the sell-side’s most recognized fixed income syndicate desks.
Today the IG Corporate dollar DCM hosted 11 issuers across 22 tranches totaling $21.05b. The SSA space added the Government of Bermuda’s $1.35b two-part 10- and 30-year transaction bringing the all-in IG day totals to 12 issuers, 24 tranches, and $22.40b.
Last Tuesday, August 11th I wrote here in the “QC” that “….if you haven’t heard by now, as of last Wednesday, August 8th we beat the all-time annual IG Corporate-only volume record pricing a total of $1,337.65 TRILLION vs. the old 2017 annual record of $1,333.355 TRILLION…..and it’s not even mid-August yet! For those of you wondering, we are only $13.239b away from setting a new annual volume record for combined IG Corporate issuance and SSA issuance. We currently stand at $1,635.507 TRILLION vs. the 2017 record of $1,648.746 TRILLION.” As I said, records are made to be broken and that one fell today making 2020 the single most prolific year of debt issuance in the history of our financial services. Every day thru to the end of this year will set a de facto new record going forward until the end of the year. Congratulations to all the issuers, bankers, salespeople, and of course syndicate professionals tasked with marketing, selling and pricing these deals. As of end of day today we have priced a total of $1,674.35b in IG Corporate plus SSA issuance. Simply astounding!
Duke Energy Progress, LLC $700mm 18moNC6mo Issuance is an ESG Grand Slam with Seven Diverse Joint Leads Anchored by Citigroup
From organizational calls to two market update conference calls; from announcement to guidance; from launch to final pricing, Citigroup Syndicate stood shoulder to shoulder with seven diverse broker-dealers coming together to price a fabulous Duke Energy Progress, LLC $700m 18moNC6mo Senior Unsecured Floating-Rate Notes transaction rated A2/A- and another BIG win for ESG issuance.
There is a different challenge as well as uniqueness to such a structure for Duke Energy Progress including the use of proceeds and the bank group that marketed and priced the financing. Proceeds will be used to pay down a $700mm term loan. That term loan was put in place in the fall of 2018 and was intended to help Duke finance hurricane costs at that time. It was a bridge securitization transaction. The legislation had to be put into place, in which Duke looked to its PSC to put in an order that took a bit longer. The end result was Duke had to either decide to go back to the bank market to extend the term loan or to tap the market to buy more time. Recently on Tuesday, August 28th Florida Power & Light Co. (“NEE”) and A1/A rated priced a $1.25b Senior Unsecured 3NC6mos FRN due 7/28/2023 at 3mL+38 that attracted a $3.2b final order book for a 2.56-times bid-to-cover rate and came with a negative <4.5> bp new issue concession and that was 3mL+28 bid this morning or 10 bps tighter. That structure featured a continuous call with 10 days’ notice after 6 months. Par call 2.5 years prior to maturity. It garnered much attention in our IG dollar DCM. Large tier I accounts need the structure and as a result, it was well-subscribed and performed well given the scarcity value of the product. Duke Treasury/Funding was aware of all these situations congealing and jumped at the opportunity to capitalize on smart financing that ultimately is good for the Company, shareholders and of course Duke/Progress ratepayers – the people who turn on and off the lights. But Duke didn’t stop there.
On Duke Energy’s August 10th Q2 call, management reported $1.08 EPS beating estimates for $1.03 by $0.05. Post Q2 earnings Duke was consulting with Citigroup who has been a historic innovator when it comes to Diversity and Inclusion mandates and socially responsible structures in our financial services industry. Cases in point, Citigroup created perhaps the most inventive and inclusive approaches to fixed income procurement initiatives – the concept of proactive, involved, and equal joint lead roles for certified diverse broker-dealers. That concept manifested itself again in today’s transaction in which Citigroup served as the lead left or “stabilizing” lead manager while no less than seven diverse broker-dealers were selected by Duke Energy Progress Treasury/Funding and Capital Markets to address the Company’s internal D&I mandate while once again highlighting the “S” for Social in ESG financing. This revolutionary format has been developed, molded, and shaped by Citigroup’s forward-thinking bankers and syndicate managers. In fact, today’s financing represents Citigroup’s 9th such transaction and second for Duke Energy. Duke Energy Ohio was the first foray within the “DUK” complex according to Citigroup. In the past, Citigroup additionally led such financing for GECC, a total of five for Toyota and one for Verizon according to Citigroup.
Today’s group of diverse broker-dealers breaks new ground once again for social responsibility in our financial services industry as marketed by the entirety of team Citigroup Origination and Syndicate. Witness the involvement and inclusion (pun intended) of every one of the joint lead entities that took part in today’s transaction and enjoyed direct participation on the deal. That increase in “ownership” saw each broker-dealer (in alphabetical order) lead market update calls, the formal announcement, guidance, and launch of the transaction. That active participation communicates to the street that some firms do have the capital as well as the skill set to underwrite such deals. It elevates our share in the marketing of a debt transaction as well as the book build and price evolution throughout to execution. It helps make the marketing and selling of bonds to investors that much more meaningful. It is a concerted effort on behalf of the issuer Duke Energy Progress and Citigroup to even the playing field in our debt capital markets with D&I firms. Today resulted in an invaluable and highly relevant outcome for Duke Energy Progress and represents a beacon for any other issuer to meet and/or address and expand upon their respective and increasingly critical internal ESG mandates.
The market is being partly held up by the Fed’s support of credit markets and the buying spree will likely continue as long as that put remains even despite Washington’s inability to hammer out a fiscal relief package.
The Duke Energy Progress, LLC Deal Dashboard
The overall Duke Energy Progress order book was $2.80b making today’s $700mm financing a very strong 4.00-times oversubscribed. For a defensive sector as the utility sector is, that is a resoundingly high bid-to-cover rate.
Here’s a look at the final order book and bid-to-cover rate:
|Tranche Size||Final Order Books||Bid-to-Cover
……and here’s a check of spread compression from IPTs thru the launch and final pricing as well as new issue concession or NIC and trading levels.
|3mL+37.5||3mL+18 #||3mL+18||3mL+18||<19.5> bps||<7>||3ml+17/||<1> bp|
In terms of relative value the Duke Energy Progress FRNs due 5/15/2022 were at Z+17bp, with today’s new 2/2022 FRN maturity in a bullet format would be around Z+15bp. The aforementioned NEE or Florida Power & Light $1.25b Senior Unsecured 3NC6mos FRN due 7/28/2023 pegged its 6-month call at 10 to 15 bps call it 12.5 bps. Today, however, the call valuation is more like 10 bps. That nails fair value on today’s deal at 3mL+25 or versus final pricing at 3mL+18. That pegs NIC on today’s new Duke Energy Progress FRN at negative <7.5> bps. So tighter pricing and a much larger order book than FPL. What’s that tell you about Duke Energy Progress? It tells you all you need to know – Happy issuer, happy stakeholders, happy ratepayers and a great transaction for Social Responsibility in our IG dollar DCM.
Duke Energy Progress Final Pricing Details:
DUK 700mm 3mL+18 1.5nc0.5 FRNs due 2/18/2022 @ $100.00
$700mm Duke Energy Progress Deal Brings Duke’s ESG Financing Total to $3bn since 2018
According to Duke Energy Corp’s. 2019 Sustainability report, the Company has issued $1.3b in green bonds, bringing its total clean energy offerings to $2.3b since 2018. Including today’s $700mm 18moNC6mo Social Responsibility financing, Duke’s cumulative ‘ESG’ transactions have now grown to an even $3b since 2018.
I/we congratulate Duke Energy’s Corporate Treasury and Legal for today’s successful transaction and for once again being on the cutting edge of social responsibility with a value-added proposition. These great strides and unique banking group structures are watched in our IG dollar DCM. The U.S. Fortune 500 takes note. We appreciate the opportunity to demonstrate our capital markets capability, and we also appreciate and thank the great crew at team Citigroup Syndicate and Origination for their progressive outside-the-box thinking that created these types of D&I lead managed issuances from the beginning.
Above is the opening extract from Quigley’s Corner aka “QC” 08-17-2020 edition distributed via email to institutional investment managers, lead underwriter syndicate desks and Fortune Treasury clients of Mischler Financial Group, the investment industry’s oldest diversity-certified broker-dealer owned and operated by Service-Disabled Veterans.
The QC is a daily synopsis of everything Syndicate and Secondary as seen from the perch of Mischler’s primary debt capital markets desk. Commentary 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 deal pipeline.To receive Quigley’s Corner, please email: email@example.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, ITC Markets, Market News International, Prospect News, Stone & McCarthy Research, Refinitiv, 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.