Bloomberg / New York
Wall Street is bracing for flurry of new debt sales this week, with two jumbo deals expected to kick off the busiest primary high-grade calendar since mid-April and high-yield issuance poised for a record first-half.
Blue-chip companies may raise between $40bn and $45bn this week, dominated by non-financial corporations exiting voluntary blackout periods. The two jumbo transactions are expected early in the week, according Bloomberg’s Brian Smith. The high end of the projection is nearly double this week’s supply volume of $26.15bn and would make it the busiest week since back-to-back record-setting bank deals led to a $52bn week in mid-April.
Rates on 10-year US government notes – a benchmark for global borrowing – plunged more than 10 basis points after US job growth significantly undershot forecasts in April, suggesting that difficulty attracting workers is challenging the economic recovery.
While lower yields may boost issuance, particularly for borrowers looking to refinance existing debt, the uncertainty makes it harder for companies to plan expenses, according to Dominique Toublan, head of US credit strategy at BNP Paribas SA.
“This was a big miss versus expectations,” Toublan said in an interview Friday. “It seems the experts don’t quite understand the payrolls dynamics. Is there something else we don’t understand?”
The issuance blitz in the US corporate high-yield primary market almost seems unstoppable, thanks to record-low borrowing costs and huge investor appetite for risky assets. Supply is roughly $1.5bn short of surpassing the current high of $210.44bn set in the first half of 2020.
Chemical products manufacturer Polar US Borrower LLC is expected to price its $300mn senior unsecured junk bonds on Tuesday, while a $450mn deal to help fund the acquisition of Club Car by Platinum Equity from Ingersoll Rand may price on Thursday.
In the leveraged loan market, behavioural-health software provider Therapy Brands Holdings LLC is set to wrap up its $400mn in term loans to support its $1.2bn acquisition by private equity firm KKR & Co. There’s a bank meeting for Hilton Grand Vacations $1.3bn on term loan to partially support the acquisition of Diamond Resorts International on May 10, as well as one for Pathway Vet Alliance’s $200mn incremental loan planned for Thursday.
More opportunistic borrowers may come as investors continue to pour money into US leveraged loan funds, which have seen the longest positive streak since 19 weeks between February and June 2018. JPMorgan Chase & Co credit analysts have revised upward their supply expectations across US credit, most significantly for leveraged loans. The bank now sees $775bn of full-year leveraged loan issuance and $525bn of high-yield bond sales – increases of $500bn and $150bn, respectively.
“Leveraged credit issuers are capitalising on record-low yields in 2021 at an unprecedented pace as the rapid recovery in the global economy and Fed’s easy monetary stance are boosting demand for both high-yield bonds and leveraged loans,” strategists including Nelson Jantzen and Eric Beinstein wrote in a Friday report. In distressed credit, the bid to buy Hertz Global Holdings Inc out of bankruptcy is coming to a head with an expected auction on Monday. An investor group including Centerbridge Partners prepared a new offer to counter the one currently chosen by the company, backed by Knighthead Capital Management and Certares Management, Bloomberg reported.
Also on Monday, Ron Perelman’s cosmetic giant reports first quarter results followed by an investor call. Sequential Brands Group faces a forbearance deadline that day. Later in the week mall owner Washington Prime’s forbearance agreement is scheduled to expire May 12 pending another extension.
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