Morning Commentary: MasterCard, San Diego Gas, Southwest Gas on tap; light supply eyed

By Cristal Cody

Tupelo, Miss., May 28 – At least three issuers are marketing high-grade bond deals in the primary market on Tuesday following the Memorial Day holiday.

MasterCard Inc. plans to price two tranches of fixed-rate notes.

San Diego Gas & Electric Co. is offering new 30-year first mortgage bonds.

Southwest Gas Corp. marketed 30-year senior notes at the start of the day.

About $10 billion to $15 billion of deal volume is expected this week due to the holiday, according to syndicate sources.

Investment-grade issuance of $546 billion year to date is down 10% over last year’s pace due to lower mergers-and-acquisitions related funding, according to a BofA Securities report released on Tuesday.

“The key driver of this decline is M&A-financing,” BofA Securities analysts said in the note.

M&A-related supply year to date stands at $91 billion, down from the $130 billion of bonds priced to fund mergers in the same period last year.

M&A-related issuance “is likely to remain relatively weak as the pipeline value of pending deals with IG funding implications at $251 [billion] currently is the lowest level since we began tracking it four years ago,” according to the report.

“Moreover, several factors, including elevated macro uncertainties imply a relatively slow pace of new M&A announcements going forward,” the analysts said. “Intuitively then, our outlook for only a 4% decline in supply for the full year 2019 is at risk. However, mitigating that, last year's issuance was frontloaded more than usually into 1H (59%), which implies a weak 2H18 comp for 2H19.”

So far in 2019, the year’s two biggest bond deals priced in back-to-back sessions at the start of May to help fund acquisitions.

International Business Machines Corp. priced a $20 billion eight-tranche offering of notes (A1/A/A) on May 8 to help finance its takeover of Red Hat, Inc.

Bristol-Myers Squibb Co. priced a $19 billion nine-tranche Rule 144A and Regulation S offering of senior notes (A2/A+) on May 7 to fund a portion of its acquisition of Celgene Corp.

The main M&A-related deal in the near-term pipeline is from T-Mobile U.S. Inc., which held a roadshow April 30 through May 8 for an expected high-grade secured bond offering to fund its acquisition of Sprint Corp.

The all-stock acquisition values Sprint at about $59 billion and is expected to close in June.

The funding size is projected in the mid-$30 billion range.

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