Quieter week closes with Fortress/Drawbridge crossover deal; Royal Bank of Canada firms

By Aleesia Forni and Cristal Cody

Virginia Beach, July 11 – A new crossover deal from Fortress/Drawbridge Fund capped off a relatively quiet week for the high-grade bond market.

The $300 million offering of seven-year notes priced in line with talk.

Around $12 billion of investment-grade paper sold this week, falling short of what sources had predicted to be around $15 billion of supply.

Earnings blackouts, coupled with a softer tone to the market later during the week, kept a lid on high-grade issuance.

In other news this week, Lipper reported inflows of $417.4 million into corporate investment-grade funds for the week ended July 9.

This brings the year-to-date total inflows to roughly $49 billion.

Looking ahead, sources are pegging next week to see around $20 billion of issuance as companies begin to exit earnings blackouts.

“Should be busier,” a source said.

Royal Bank of Canada’s C$1 billion offering of new contractual non-viability subordinated debt commanded the Canadian market’s attention on Friday, according a market source.

“This is the first issue of a whole new class of NVCC – nonviability contingent capital debt,” the source said. “The Canadian market has been anticipating this for some months now. Because it’s brand new, nobody really knew where it was going to be priced until somebody came to market with a live issue.”

Royal Bank of Canada sold C$1 billion of 3.04% 10-year subordinated debentures in the inaugural Basel III-compliant offering at 99.982 to yield 3.044%, according to the bank and a market source. The debentures priced at a spread of 145 basis points versus the interpolated Government of Canada bond curve.

According to Moody’s Investors Service, NVCC subordinated debt provides loss absorption as it is subject to automatic conversion into common shares at the point of non-viability, as defined by the Office of the Superintendent of Financial Institutions Canada.

In the secondary market, Royal Bank of Canada’s debentures due July 17, 2024 (Baa1/A-/DBRS: A) tightened 4 bps by late afternoon, a source said.

Trading activity was mostly quiet on Friday with bonds overall unchanged to modestly wider, according to market sources.

Fortress/Drawbridge crossovers

Friday’s primary market saw Fortress/Drawbridge Fund sell $300 million of 5% seven-year senior notes (BBB) at 313 bps over Treasuries, according to an informed source.

The deal sold at a reoffer price of 98.541 to yield 5¼%.

The yield printed on top of yield talk. The spread came in line with spread talk of Treasuries plus 311 bps.

Wells Fargo Securities LLC was the left bookrunner for the deal, which was run as a joint effort on the high-yield and investment-grade syndicate desks.

Natixis Securities Americas LLC was the joint bookrunner.

The issuing entities are Drawbridge Special Opportunities Fund LP and Drawbridge Special Opportunities Finance Corp.

The New York-based private investment partnership plans to use the proceeds for general corporate purposes including new investment opportunities.

Paul A. Harris contributed to this review.

© 2015 Prospect News.
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