2 International Financing Review April 4 2020Top news
Carnival ships in US$6.25bn 04 YUM! Brands returns 05 Israel hits right notes 06
Hairy credits and wary investors
but bond issuance booms
Bonds Strange days indeed as records fall and trickier credits returnBY WILLIAM HOFFMAN, SUDIP ROYCorporates more vulnerable to
the economic damage being
caused by the coronavirus
pandemic joined in the
borrowing spree in the
investment-grade markets last
week as issuance records again
tumbled on both sides of the
Atlantic.
Despite bleak warnings from
President Trump about the
number of lives that could be
lost in the US from the virus and
further awful economic data
sending US equity markets back
into a downward spiral, the US
credit markets were dancing to a
different tune.
In Europe, too, a number of
issuers from more troubled
sectors were out in force, some
with blowout deals, as anchor
support from the ECB helped to
smash the weekly issuance
record in the euro investment-
grade corporate market.
While upcoming earnings
blackouts and the Easter holiday
will provide a natural pause in
issuance, one banker summed
up the view of many when he
said the market had “come too
far, too fast”.
No deal, however, has failed
since March 23 when the US
Federal Reserve joined the ranks
of central banks prepared to buy
corporate bonds – though
there’s no evidence it has
actually done so yet.
Instead there has been an
unprecedented scale of
borrowing as corporates seek to
build their cash balances,
RElNANCEûDEBTûANDûGENERALLYûPUTû
themselves in a better position
to weather further volatility.
In the US high-grade market,
another US$110.9bn of bonds
was priced last week as of
Thursday’s close, establishing anew weekly issuance record just
a week after the last one was set.
The US$109bn issued the
previous week helped establish
new monthly and quarterly
records – something
unimaginable just a fortnight
ago.
More than US$256bn of bonds
were sold in March to help to
TAKEûTHEûlRST
QUARTERSûTALLYûTOû
just less than US$486bn. All that,
DESPITEûRECORDûWEEKLYûOUTmOWSû
from high-grade bond funds
during March.IT’S ALL RELATIVE
While the initial funding rally
was paved by blue-chip names,
last week was characterised by
issuance from Triple B credits at
risk of becoming fallen angels.
“As of Monday, access opened
up to the broader IG community
in a way that it really wasn’t
even a week ago,” said one DCM
syndicate banker.
“There are a number of
funding stresses in other
markets, so the reprieve in IG
primary credit and the rally in
the secondaries makes the high-grade market a lot more
attractive on a relative basis.”
Issuers included FOX CORP,
GENERAL MILLS and SYSCO as well as
a number of lesser-known utility
ANDûlNANCIALûNAMESSysco’s US$4bn four-part bond
is viewed as the prime example
of the shift for Triple Bs.
The company distributes food
to restaurants, stadiums and
other events involving crowds,
which puts it under
considerable pressure as such
activities are cancelled.“No company is entirely
insulated from the downturn,
but if you’re a global brand
name like Coke, Pepsi or Verizon- these sorts of names that are
attributed with reopening the
market – they obviously have a
LOTûOFûDIVERSIlEDûBUSINESSûLINES û
scale and breadth,” said a lead on
the Sysco trade.
“Sysco’s business, on the other
hand, is delivering food to
restaurants, venues and theatres
so obviously they are right in the
eye of the storm.”
Moody’s downgraded Sysco to
Baa1 from A3, while S&P
AFlRMEDûITSû"""nûRATINGûWITHûAû
negative outlook, heightening
fallen angel fears. Ahead of
issuance, Fitch also released a
lRST
TIMEûRATINGûFORû3YSCOûATû"""û
with a negative outlook.
Yet the US$4bn bond deal
MADEûITûOVERûTHEûlNISHûLINEûWITHû
a remarkable US$24.4bn in
orders.
“People are concerned about
Sysco falling to junk,” one
investor said. “It shows that debt
markets are open for even
riskier names right now.”
The food distributor did have
to pay up handsomely though.
3YSCOûPRICEDûAû53MûlVE
year, a US$1.25bn 10-year, a
US$750m 20-year and a
US$1.25bn 30-year all at 525bp
over Treasuries.
Those spreads were way above
fair value with the new-issue
premium at 125bp–130bp,
according to IFR calculations,
though one syndicate banker
away from the trade pegged it
closer to 200bp.
The lead banker said Sysco
management went above and
beyond to get the deal done by
seeking out a third credit rating,
adding coupon step-ups in the
event of a downgrade to high-
yield and adding
BIGGEST US CORPORATE BOND DEALSSource: IFRUS$bn01020304050Bristol-Myers (2019)Oracle (2020)Microsoft (2016)T-Mobile (2020)IBM (2019)
Half Moon (2018)Diamond Finance (2016)AbbVie (2019)Comcast (2018)AT&T (2017)Actavis (2015)CVS (2018)Anheuser-Busch (2016)Verizon (2013)49.
46.
40.30.
27.
22.521.
20.0 20.0 20.020.019.8 19.019.“There are a number
of funding stresses in
other markets, so the
reprieve in IG primary
credit and the rally
in the secondaries
makes the high-grade
market a lot more
attractive on a relative
basis”4 IFR Top news 2327 .p 2 - 12 .indd 2 03 / 04 / 2020 19 : 29 : 24