Borrowers found a less welcoming investor base as the week went on and French oil company Total spooked some bankers on Wednesday when it came to the market with a $1.6bn deal that garnered a $2.9bn book and ended with a double-digit new issue concession
“There’s no question, this was a challenge. They’d hoped to get more than $1.6bn,” said a source close to the deal.
The two part trade divided opinion among syndicate bankers. One saw it as a harbinger of more volatile times, while another source close to the deal said it was name and sector-specific: “Total only came a couple of months back with a 30 year, so tapping the longer end again so soon had some scratching their heads.”
Abbott Laboratories opened supply on Monday with a $1.3bn trade, while Canadian Natural Resources raised $1.1bn and Niagara Mohawk Power $1.1bn.
Rising Covid cases in several US states have rattled markets, which were further unsettled by worse-than-feared weekly job data. “We’re not sure about a V-shaped recovery now,” said one head of syndicate.
A more sanguine view is that the drop in issuance is normal at month and quarter end, when investors rebalance their portfolios.
“We’re seeing some weakness on the margins, but that’s relative to the past number of weeks, when negative new issue concessions had become the norm across the board,” said Dan Botoff, head of US investment grade syndicate at RBC Capital Markets in New York.
On Thursday software company Intuit was set to print the biggest trade of the week, a $2bn four tranche deal to help fund its $7.1bn acquisition of Credit Karma. “Even with a softer opening in equity markets and credit weaker, issuers are still able to access the market at attractive rates,” said Botoff.
Bankers expect supply to be light next week in the run-up to the July 4 weekend, before focus switches to second quarter earnings, which will give a true picture of the impact of Covid on corporate America.
Syndicate bankers are predicting around $100bn for July – double the amount printed in July 2019 – but that may prove optimistic. “Volume-wise, I expect to see a retrenchment back to more seasonal levels,” Botoff said.
While bankers are strapped in for volatility to return, the technical bid for high grade credit remains strong, and the US Federal Resrve's role as backstop investor will act as a reassuring presence.
But the debate about the direction of the market is happening because of uncertainty, which usually acts as a brake on activity.