Corporate credit traders to watch for Taper announcement at Fed meeting

(Bloomberg) – Corporate credit traders will watch for a cut announcement at the Federal Reserve meeting on Wednesday and any indication of a timeline. Sales of high-quality U.S. debt securities are expected to pick up next week with around $ 25 billion of expected supply, while the pipeline of new leveraged loans and junk bonds looks lighter, according to surveys from ‘banking analysts and underwriters.

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Good quality borrowers will likely look to get ahead of the Fed, making the week of new issues if the window is opened. Interest rates rise in anticipation that the central bank, which is typically expected to come up with plans to curtail its asset purchases, may need to speed up the process of tightening its policy to tackle the risks of inflation. This will help get all issuers in need of funding to leave as early as possible.

Estimates of quality emissions for the entire coming month are around $ 100 billion, compared to the more than $ 115 billion sold in October, which was well above the $ 100 billion forecast based on surveys of union offices.

As for new leveraged loan issuance, November sales are expected to be between $ 30 billion and $ 45 billion, according to five Wall Street banks and research bureaus polled by Bloomberg. The volume of US high yield bonds is expected to be between $ 20 billion and $ 25 billion, according to three of them, with another calling as high as $ 43 billion.

“Smaller LBO financings and more opportunistic deals such as repricing, add-ons, dividend summaries as well as the Thanksgiving holiday will likely see emissions drop 20-25% from October levels.” said Art de Pena, head of the lending and distribution syndicate. at Mitsubishi UFJ Financial Group Inc.

Mergers and acquisitions and leveraged buyouts accounted for just over half of October’s $ 78.5 billion lending volume, according to data compiled by Bloomberg.

The month kicks off with at least six lender meetings on deck, including the Ontario Teachers’ Pension Plan Board’s buyout funding for Vantage Elevator Solutions and some price revisions. A $ 2 billion loan to aircraft rental company AerCap Holdings NV to help finance its acquisition of GE Capital Aviation Services is also due, and follows a recent $ 21 billion bond sale that was part of the debt package.

High efficiency

Junk bonds may have suffered losses recently, but investor demand for new issues remains mostly strong with only some struggling deals such as the $ 1.1 billion offer for Brinks Home, heavily. indebted.

After around $ 30 billion of supply in October, the high yield bond schedule is so far light with only a few trades on the agenda. Among them is United Site Services, a porta jar rental company, which is selling a $ 1.3 billion bill and a $ 1.25 billion leveraged loan to fund its buyout by Platinum Equity.

“It will likely be a robust month for the show, but it is unlikely to be a record after such a large supply this year and with the holidays ahead,” said Nicole Hammond, senior portfolio manager at Angel Oak Capital. Advisors. “But issuers are always going to want to anticipate potential rate hikes, and the primary market is open to almost anyone.”

Teva Pharmaceutical Industries Ltd. is also in the market, tapping into the growing demand for sustainability debt with an initial issue of $ 4 billion. The bond deal, which is expected to be priced next week, aims to improve access to medicines in low- and middle-income countries.

Earnings calendar

The next five trading days will see a flurry of earnings reports from regular debt issuers.

“So far they have been pretty good with few disappointments. Companies are talking about supply chain issues and need to do more to access materials and labor, but that doesn’t impact margins as demand remains strong, ”said Hammond.

Avis Budget Group Inc., AMC Entertainment Holdings Inc., CVS Health Corp., KKR & Co., Marriott International Inc., Owl Rock Capital Corp. and T-Mobile US Inc. are part of these reports.

Struggling in debt, Sequential Brands Group Inc. has a bankruptcy court hearing Thursday to consider approving the resale of Jessica Simpson’s name. This is the same day LTL Management LLC, the Johnson & Johnson unit filed for bankruptcy to end baby powder lawsuits, will appear in North Carolina court to ask that the claims against J&J be suspended.

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