2020-04-04 IFR Magazine

GOVERNMENT FUNDING AGENCY, rated AA+/AA+

30&ITCH  ûHASûHIREDûANZ, BNZ, CBA and

Westpac for a senior unsecured six-year

!PRILûû  ûBONDûOFFERINGûFORû

institutional and retail investors.

,'&!ûPREVIOUSLYûISSUEDû.:MûOFûû

SHORTû

YEARûRETAILûNOTESûLASTû!UGUSTûHAVINGû

debuted in the domestic bond market in

-ARCHûûWITHûAûNON

SOVEREIGNûRECORDû

.:BNûSALEûOFûûlVE

YEARû!PRILûû

2024) notes.

The agency, which provides cheap debt

lNANCINGûTOûPARTICIPATINGûLOCALûCOUNCILSû

previously focused on small, regular tender

issues, which are allocated on a sliding scale

based on the councils’ sizes and credit

ratings.

The New Zealand government owns 20%

of LGFA, while 30 regional and territorial

councils, including Auckland Council,

Christchurch City and Wellington City, hold

the remaining 80%.

,'&!ûHASûIDENTICALû30ûANDû&ITCHûRATINGSû

to New Zealand sovereign bonds, but has no

rating from Moody’s (which rates the

sovereign Aaa) and no government

guarantee.

CORPORATES

US DOLLARS

SUPPLY GLUT SHOWS FEW SIGNS

OF SLOWING

Overcoming volatile markets and a world

hobbled by the coronavirus pandemic,

BORROWERSûAREûCOMINGûTOûTHEû53ûHIGH

GRADEû

corporate bond primary with

unprecedented supply.

The latest trading period set a new record

FORûTHEûMOSTû53ûINVESTMENT

GRADEûBONDû

supply in a week as jumbo deals from ORACLE

and T-MOBILE helped push issuance just shy of

53BNûTHROUGHûLASTû4HURSDAY

The new high mark beat the previous

record set just one week prior, when

53BNûPRICEDûINûTHEûWEEKûENDEDû

March 27.

The record-setting supply would have

seemed impossible coming into March as

coronavirus fears gripped the markets.

*USTû53BNûHADûPRICEDûINûTHEû

market through the month’s half-way mark,

with several no-print days and at least three

pulled deals.

"UTûISSUANCEûmOODEDûTHEûMARKETûINûTHEû

last two weeks, spurred by the Federal

2ESERVESûANNOUNCEDûCORPORATEûBONDû

PURCHASEûPROGRAMMEûANDûAû53TRNû

stimulus package, allowing companies to

seize on the opportunity to shore up their

liquidity and issue new debt.

Volume in March ended with

53BNûINûNEWûSUPPLYûMARKINGûAû

monthly and quarterly record for the asset

CLASSûACCORDINGûTOû)&2ûDATA

March volumes by far surpass the last

MONTHLYûRECORDûSETûINû-AYûûWHENû

HIGH

GRADEûBORROWERSûRAISEDû53BN

Quarterly issuance also reached a new

HIGHûATû53BNûWELLûOVERûTHEûPRIORû

RECORDûOFû53BNûSETûINû1û

To put the rally further into perspective,

from the start of March to April 2, borrowers

BROUGHTû53BNûTOûTHEûMARKETû

EXCEEDINGûTHEû53BNûOFûVOLUMEû

from the previous four months combined,

)&2ûDATAûSHOW

“It has been a very sharp rally but the

damage done to get us there was nothing

short of remarkable,” said Kurt Halvorson,

portfolio manager at Western Asset

Management.

From the middle of February to March 23,

average investment-grade credit spreads

blew out 300bp to around 400bp over

Treasuries, according to ICE BofA Data.

3INCEûTHEû&EDSûANNOUNCEMENTûAVERAGEû

spreads are back to 305bp over.

“The market is still trying to process the

Fed’s announcement while also absorbing a

massive new issue calendar,” Halvorson

said.

7ITHûlRST

QUARTERûBLACKOUTSûAPPROACHINGû

issuance may slow in April if historical

trends are any indication, according to a

"ANKûOFû!MERICAû2ESEARCHûREPORT

But one syndicate banker noted that two

back-to-back jumbo deals in one week shows

there is still money to be put to work.

WELL-CAPITALISED CORPORATES TAP

BOND MARKET FOR EXTRA CASH

3OMEûOFûTHEûBIGGESTûSAFESTûHIGH

GRADEû

credits are raising substantial sums in the

bond market, adding to already high cash

reserves as they prepare for more volatility

in both the markets and the broader

economy.

Companies such as ORACLE, ANHEUSER-BUSCH

INBEV and SHELL INTERNATIONAL FINANCE raised

billions of dollars last week even though

they have enough to cover upcoming

maturities, as management remembering

past crises prepare for the worst.

“A lot of issuers are looking back and

thinking if this really is the next crisis, then

they need to prepare and shore up for two

years.” said Kurt Halvorson, portfolio

manager at Western Asset Management.

“For a 4% coupon they can take that risk off the

table and start thinking about their business.”

The trend started when tech company

Oracle priced last Monday and continued on

7EDNESDAYûWITHû!"û)N"EVSû53BNûFOUR

PARTûBONDûANDû3HELLSû53BNû

three-parter.

Beermaker AB InBev has already built up

Aû53BNûCASHûRESERVEûTOûHELPûPAYûDOWNû

debts through a series of asset sales,

ACCORDINGûTOû#REDIT3IGHTS

Just the week before, regulators approved

!"û)N"EVSû53BNûSALEûOFûITSû!USTRALIANû

SUBSIDIARYû#ARLTONûû5NITEDû"REWERIESûTOû

Japanese brewer Asahi.

3PREADSûONûTHEûNEWû!"û)N"EVûNOTESû

tightened 40bp–50bp through price

PROGRESSIONûPRICINGûAû53BNû

YEARûATû

BPûOVERû4REASURIESûAû53BNû

YEARûATû

BPûAû53BNû

YEARûATûBPûANDûAû

53BNû

YEARûATûBP

At those levels, the cash-rich brewer was

able to achieve new issue concessions of

BPûACCORDINGûTOû)&2ûDATA

AB InBev has already termed out many of

its short-term debt maturities and it still has

MOREûTHANû53BNûINûCASHûTOûPAYûDOWNûJUSTû

53BNûOFûMATURINGûBONDSûOVERûTHEûNEXTû

THREEûYEARSûACCORDINGûTOû2ElNITIVûDATA

“Issuers are certainly hedging their bets,”

said Matt Daly, head of corporate credit

research at Conning.

“We’re seeing some companies address

near-term debt maturities. We’ve seen some

term out their bank revolvers and it’s

prudent to do that when there is access to

the market.”

POWER OUTAGE

Oil majors are also prudently bolstering cash

reserves as crude prices continue to hover

AROUNDû53ûAûBARRELûATûAûTIMEûWHENû

demand is at new lows amid global travel

restrictions.

High-quality investment-grade names in

the sector should be able to weather the

storm as they reduce capital expenditures,

cut share buybacks and add revolver

facilities.

3HELLûFORûEXAMPLEûHASûSOMEû53BNûINû

LIQUIDITYûITûCANûTAPûINTOûINCLUDINGû53BNû

in cash on hand, but was adding more in the

debt markets on Wednesday.

)TûPRICEDûAû53BNûlVE

YEARûATûBPû

OVERû4REASURIESûAû53BNû

YEARûATûBPû

ANDûAû53BNû

YEARûATûBP

Those levels were some 50bp tight to

where Exxon Mobil priced in the market in

MID

-ARCHûASûONEûOFûTHEûlRSTûHIGH

QUALITYû

names to reopen the investment-grade

primary sector.

“These high-quality oil borrowers are in

the market just to take the tail risk off the

table,” Halvorson said.

“They are going to take on a little bit of

incremental debt until prices recover, and

hopefully something on the supply side gets

sorted out sooner rather than later and

demand can come back sharply in Q2 or Q3.”

38 International Financing Review April 4 2020

6 IFR Bonds 2327 p 25 - 65 .indd 38 03 / 04 / 2020 20 : 28 : 59