US markets remained near record highs with the S&P gaining 0.1%. Nasdaq on the other hand was down 0.2%, ending the first half of the year up 12%. S&P extended gains to the fifth consecutive month, up 14% YTD. Cyclical stocks closed higher on Wednesday – Energy was up 1.3% and Industrials up 0.8%, while IT was marginally down 0.1%. US ADP private payrolls beat expectations and increased by 692k vs estimates of 550k. US 10Y Treasury yields tightened 1bp to close at 1.47%. European markets declined on Wednesday – DAX was down 1%, CAC down 0.9% and FTSE down 0.7%. US IG and HY CDS spreads were 0.1bp tighter each. Euro-zone inflation cooled to 1.9% in June from 2.0% in May. EU main and crossover CDS widened 0.5bp and 2.2bp respectively. Saudi TASI was down 0.1% and Abu Dhabi’s ADX was up 1.1%. Brazil’s Bovespa was down 0.4%. Asian markets are mixed – Singapore’s STI is up 0.3%, HSI down 0.6%, Nikkei down 0.4% and Shanghai largely flat as the Caixin/Markit manufacturing Purchasing Managers’ Index for June was lower at 51.3 vs 52.0 in May. Asia ex-Japan CDS spreads were 0.3bp wider.
New Bond Issues
UniCredit raised €750mn ($889mn) via a Perpetual non-call 7Y (PerpNC7) AT1 bond at a yield of 4.45%, 37.5bp inside initial guidance of 4.875% area. The bonds were rated Ba3 and received orders over €1.75bn, 2.3x issue size. If not called on the first reset date of June 3, 2028, the coupon resets then and every five years thereafter to the 5Y Mid-Swaps + 460.6bp. The bonds are callable from and including December 3, 2027 till the first reset date, and each coupon date thereafter. A trigger event occurs when the CET1 Ratio of UniCredit Group or the Issuer at any time falls below 5.125% or the then applicable ratio. The new perps priced 22bp tighter vs. its older 3.875% perps callable in June 2027.
Oxley Holdings raised S$70mn ($52mn) via a 3Y bond at a yield of 6.9% in-line with the initial guidance. The bond is unrated. Wholly owned subsidiary Oxley MTN is the issuer and Oxley Holdings the guarantor. There is a 25-cent rebate for private bank orders. Proceeds will be used to refinance debt, and for working capital and general corporate purposes.
Vena Energy raised $175mn via a tap of its green 3.133% 2025s at a yield of 2.53%, 15bp inside the initial guidance of T+180bp area. Vena Energy Capital is the issuer and Vena Energy Holdings, Vena Energy (Taiwan) Holdings and Zenith Japan Holdings are guarantors. The bond is rated BBB- and booked orders over $295mn, 1.7x issue size. Asia took 24%, EMEA 69%, and offshore US 7%. Fund managers booked 87%, banks and private banks 7%, and pension funds and insurers 6%. Proceeds will be used to refinance corporate loans for eligible green projects by guarantors under Vena Energy’s green financing framework.
New Bond Pipeline
- Hyundai Assan Otomotiv Sanayi hires for US$ 5yr bond with HMC guarantee
- Korea Gas Corp hires for $ 5Y and/or 10Y bond
- Laos plans $ bond offering; to repay 2021s
- Fitch Upgrades Yanzhou Coal to ‘BB+’; Outlook Stable
- Victoria’s Secret & Co. Senior Unsecured Rating Raised To ‘BB-‘ (Recovery Rating: ‘4’) By S&P On Change In Capital Structure
- Westlake Chemical Corp. Upgraded To ‘BBB’ By S&P On Stronger-Than-Expected Operating Performance, Outlook Stable
- Missouri TopCo, Parent Of Matalan, Upgraded To ‘CCC+’ By S&P On Stronger Operating Results; Outlook Negative
- Moody’s downgrades Evergrande’s and its subsidiaries’ ratings; reviews ratings for downgrade
- Fitch Revises Coca-Cola Icecek’s Outlook to Positive; Affirms ‘BBB-‘ IDRs
- Transurban Queensland Finance Outlook Revised To Stable From Negative By S&P; Ratings Affirmed At ‘BBB’
- Transurban Finance Outlook Revised To Stable From Negative By S&P; Ratings Affirmed At ‘BBB+’
- Fitch Assigns First-Time ‘BB+’ to China Aircraft Leasing Group; Outlook Stable
- Fitch Publishes First-Time ‘BB’ IDR to Seaspan Corporation; Outlook Stable
- Moody’s revises Yincheng’s rating outlook to negative, affirms B2 rating
67% Dollar Bonds Trade Higher in Q2, Staging a Recovery from Q1
The second quarter of 2021 saw a significant reversal in fortunes after a gloomy first quarter. 67% of dollar bonds in our universe delivered a positive price return ex-coupon in Q2 as compared to 74% of dollar bonds delivering negative returns in Q1. Meanwhile, the month of June saw a continuation of May’s upward trend with 54% of the bonds delivering positive price returns. The US 10Y Treasury yield began Q2 at ~1.74% and later dipped to end Q2 at 1.44%, despite a pick-up in inflation across the US to a decade high of 3.4%. This is in contrast to Q1 which saw the 10Y yield rise 25bp, which dragged investment grade bonds’ performance. The US 2s10s curve flattened to ~122bp, as compared to ~155bp at the end of Q1. This comes as the Fed sounded a slight hawkish tone in its June FOMC meeting when the new dot plot revealed at least two rate hikes in 2023 vs. no hikes till 2024 in the March meeting.
Click on the button below to read the full quarter-end report with box and whisker plots of investment grade and high yield bonds, largest deals and top gainers and losers.
Term of the Day
Structural Subordination Risk
Structural subordination risk refers to the risk that most of the claims of the holding company are at its operating subsidiaries where these claims have a priority over the claims at the holding company in the event of a bankruptcy. Essentially, a lender to a parent is structurally subordinated to other lenders who have lent money to the subsidiary. Hence, lenders to the parent company will not have access to the subsidiary’s assets until the subsidiary’s creditors have been paid back first.
Evergrande’s B3 senior unsecured rating downgrade by Moody’s reflects structural subordination risk.
“I think blockchain has a real future in debt capital markets.” “If you can use blockchain from start to finish, you take out a lot of the costs, a lot of the risks in terms of counterparty and settlement risks.”
“It’s essentially a glorified database.” “This technology reduces the number of intermediaries involved in any given transaction.”
“Distributed ledgers will have a role to play in helping markets become more liquid and transparent,” he added. “But some of this is just hype around a new technology. I’m not sure it’s quite as revolutionary as it’s sometimes made out to be.”