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IFR SNAPSHOT - High-yield on fire and IG primary goes silent

Credit: REUTERS/THOMAS WHITE

The IG primary went silent on Monday, while the high-yield sector is on fire, with 11 announced deals.

By Jack Doran

NEW YORK, October 26 (IFR) - The IG primary went silent on Monday, while the high-yield sector is on fire, with 11 announced deals.

US stocks opened sharply down as Covid-19 concerns about spikes in cases globally has caused investors to worry about the impact of the virus.

With the US election next week, IG issuers have been tapping the brakes in recent sessions, slowing the pace of issuance or not coming to market.

On Friday, two deals were priced totaling US$2.65bn, pushing weekly issuance to US$18.2bn and October volume to US$60.485bn, according to IFR data.

HIGH GRADE        

There are no deal announcements in the high-grade primary Monday as signs of volatility creep into what was already expected to be a light week of supply. 

At least one borrower pushed calls back to 9:30am New York time to see how equities opened and ultimately decided to stand down, one syndicate banker noted. 

Equities opened in the negative as Covid-19 cases spike again across the US and especially in the Mid-West, where Chicago implemented new restrictions on non-essential businesses over the weekend. 

Still, just a week out from election day and with many companies in earnings blackout, supply is expected to slow this week.

Syndicate desks predict some US$16.3bn of new supply this week with estimates ranging from US$10bn to US$25bn, according to a note from R. Seelaus. 

In the M&A sphere, Bayer announced a plans to acquire unlisted U.S. biotech firm Asklepios BioPharmaceutical for US$4bn in a play to get into the gene therapy space. 

Germany's Bayer, which has a need to restock its pharmaceutical pipeline,  said the deal complements the 2019 acquisition of stem cell therapies developer BlueRock Therapeutics and will help create a combined cell and gene therapy business.

It is unclear if Bayer will have to raise new debt for the acquisition.    

HIGH YIELD           

An impressive 11 new US high-yield bond deals were announced Monday morning.

Just three of those are expected to price today - healthcare solutions provider MultiPlan is offering a US$1.2bn eight-year non-call three to refinance existing debt following its merger with special purpose acquisition company Churchill Capital III.

Consumer lender Sallie Mae is also expected to price a US$500m five-year senior unsecured bullet note in part to fund share buybacks.

Rigid plastic manufacturer IPL Plastics is expected to price a US$75m add-on to its existing 6.00% senior secured notes due 2028.

Quick service restaurant operator Sizzling Platter is also expected to price a US$325m five-year non-call two senior secured, which had been expected last week.

Several other deals are being lined up for pricing later in the week, by retailers Academy Sports + Outdoors and PetSmart, broadband provider Cable One, concrete service provider Smyrna Ready Mix Concrete, and online car retailer Cars.com, and pharmaceutical and consumer product distributor P&L Development.

Two mortgage lenders that recently announced plans to merge with SPACs are also looking to price five-year non-call two senior unsecured notes later this week.

Blackstone portfolio company Finance of America is looking to raise US$350m to fund a distribution, as it prepares to merge and go public with SPAC Replay Acquisition Corp in a deal valued at US$1.9bn.

Wholesale lender United Wholesale Mortgage is expected to price an US$800m deal later this week. It announced plans in September to merge with SPAC Gores Holdings IV Inc in a deal valued at US$16.1bn, making it the largest ever SPAC deal.

Dunkin' Brands said Sunday it has held preliminary talks to be taken private by private equity backed Inspire Brands, which owns Arby's and Buffalo Wild Wings.

Continuing the recent consolidation in the energy sector, Canadian oil and gas firms Cenovus Energy and Husky Energy said Sunday they would merge in an all-stock deal valued at US$23.6bn inclusive of debt.

STRUCTURED FINANCE     

Bankers are expected to churn out more deals for the US asset-backed securities market this week ahead of the US presidential election.

More than US$6bn in supply hit the sector the prior week,  bringing year-to-date issuance to US$172.53bn which is down 17% from the same period a year earlier, IFR data show.

Investor demand for ABS remain firm, helping to keep spreads to stay tight.

Dext Capital is the latest equipment ABS issuer to come to market with an announced US$112.058m offering on Monday. It followed a US$195.73m transaction from Balboa Capital last week.

"Issuance is expected to be light around the upcoming elections, as market participants remain wary of broad financial market volatility around the outcome, but we have also seen sponsors get deals in even as late as early December for year-end funding," JP Morgan analysts wrote in a research note on Friday.

In other parts of the structured finance market, Tricon American Homes is back with another single-family rental securitization - a US$440.506m offering. 

Single-family rental issuance has already hit a record annual peak at near US$9bn, which is more than double the yearly total of US$4.4bn for 2019, according to JP Morgan data.     

LATAM

The week opens at a slow pace with no deal announcements as yet this morning, as issuers show caution ahead of the US elections taking place next week.

Last week saw three borrowers approach investors with dollar deals, namely BRF, Millicom and Frigorifico Concepcion. Together they raised US$840m for the week.

Though bankers expect a quiet week, there is at least one issuer on deck with a debut issuance. Mexican telecom company Total Play Telecomunicaciones announced a mandate last week appointing Barclays, Credit Suisse, and Jefferies to lead the deal.

The transaction is expected in the market as soon as Tuesday, sources said.

EQUITIES

With two more IPO launches this morning, US ECM bankers are now looking to squeeze as many as 13 new issues into this week amid a headlong rush to get public ahead of next week’s presidential election.

Biotechs Atea Pharmaceuticals and SQZ Biotechnologies each launched IPOs this morning for pricing after the close on Thursday night, joining a packed calendar already this week led by the US$2.4bn NYSE IPO of Chinese consumer lending and wealth management company Lufax, the US$640m Nasdaq IPO of pool care company Leslie’s and the up to $604m Nasdaq IPO of insurtech Root.

Having just collected US$330m of upfront cash last week from a new collaboration with Roche for its antiviral Covid-19 therapy, Atea set terms for the sale of 11m shares at US$22-$24 to raise up to US$264m IPO and value the biotech at more than US$2bn.

This is roughly double the US$11.98 a share valuation of a US$107.5 Series D-1 round earlier this month struck before the Roche partnership.

The IPO proceeds, when combined with its Series D funds and the upfront cash from Roche, would give Atea more than US$800m of cash.

JP Morgan, Morgan Stanley and Evercore are joint bookrunners.

SQZ, which is developing a new type of cancer cell therapy, is also partnering with Roche and plans to use the proceeds from an up to US$79m IPO to launch a Phase I trial on its lead drug.

Bank of America, Evercore and Stifel are leading the sale of 4.4m SQZ shares at US$16-$18, up from a US$13.94 a share valuation on a US$68m Series D round in June.

Between the IPO proceeds and the Series D funds, SQZ would emerge with nearly US$200m of cash for clinical trials on its cancer drugs.

In a sign this week’s heavy IPO load might already be taking a toll on pricing outcomes, sponsor-backed telecom software company Mavenir opted this morning to slightly reduce the size of its offering this week to 12.5m shares from 13.64m shares at launch while keeping the marketing range at $20-$24.

Mavenir also revealed in an updating SEC filing that chipmaker Nvidia had joined Intel in buying US$25m of Mavenir shares ahead of the offering in a separate private placement, reducing the call on other investors.

Mavenir still expects to price its IPO on Wednesday night.

With more than 60 SPACs now on file to go public, bankers are likely to continue to whittle away at this backlog this week, starting with Lux Ventures’ $300m vehicle Lux Health Tech Acquisition scheduled for pricing tonight.

Separately, DISH Network co-founder Charlie Ergen opted to downsize the IPO of his new TMT-focused SPAC, CONX, to US$750m from US$1bn when it was first filed, according to an amended SEC filing this morning.

Cancer drug developer Turning Point Therapeutics this morning launched a US$400m follow-on offering this morning, its third public stock sale since its IPO last year.

Goldman Sachs, SVB Leerink and Guggenheim Securities are marketing the fixed size offering through today’s session for pricing after tonight’s close.

Turning Point shares closed at US$102.56 on Friday, well above the US$60 offer price from its previous US$325m follow-on offering in May this year.

Follow-on issuance is otherwise likely to be light this week given the busy schedule of third quarter earnings (180 S&P 500 constituents are reporting in the busiest week of the quarter).

(Reporting by IFR staff; Writing by by Jack Doran; Editing by Paul Kilby)

((jack.doran@refinitiv.com; 6463456302))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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