Morning Commentary: Johnson & Johnson, Eli Lilly, Principal Life, IFC to price notes

By Cristal Cody

Tupelo, Miss., Aug. 20 – Strong investment-grade supply is in the works over Thursday’s session with corporate and sovereign, supranational and agency issuance expected to print, according to market sources.

Johnson & Johnson is offering six tranches of fixed-rate notes (Aaa/AAA) to fund its estimated $6.5 billion acquisition of Momenta Pharmaceuticals, Inc.

A tranche of five-year notes is talked to price in the Treasuries plus 45 basis points area, a seven-year note is talked at the 65 bps spread area and a 10-year tranche is talked at the 80 bps over Treasuries area.

Johnson & Johnson is offering 20-year notes with initial price talk at the Treasuries plus 90 bps area, 30-year notes talked at the 105 bps spread area and 40-year notes talked at the 125 bps over Treasuries area.

Eli Lilly & Co. plans to price two tranches of notes (A2/A+/A), including new 40-year notes and an add-on to its 2.25% notes due May 15, 2050 that were first priced in a $1 billion offering on April 24.

The new notes are talked to price with a spread at the Treasuries plus 140 bps area. The add-on is initially guided to price in the 115 bps to 120 bps over Treasuries area.

Also on Thursday, Principal Life Global Funding II is on deck with $300 million of 10-year senior secured notes (A1/A+) backed by funding agreements.

Initial price talk is in the Treasuries plus 110 bps area.

In the SSA primary market, International Finance Corp. (Aaa/AAA) intends to price $1 billion of 10-year global notes on Thursday.

Initial price talk is in the mid-swaps plus 18 bps area.

In other activity, a multiple tranche offering of dollar-denominated senior notes (Baa3/BBB-/BBB-) is expected soon from Royalty Pharma plc following fixed income investor calls held on Wednesday for the Rule 144A and Regulation S deal.

The notes are guaranteed by Royalty Pharma Holdings Ltd.

Lighter supply in September

Investment-grade corporate issuers have priced more than $27 billion of bonds week to date, while corporate and SSA supply overall topped $34 billion by mid-week.

About $30 billion to $40 billion of issuance was expected this week.

Deal volume is expected to subside in September, according to a BofA Securities, Inc. research note.

“September is seasonally the busiest month in the IG new issue market, although of course not this year,” BofA analysts said. “The recent re-steepening of the curve, election risks and perceived risk of a second wave of infections are only accelerating refis, pulling issuance into August and asserting widening pressure on spreads.”

September is expected to see about $120 billion to $140 billion of issuance in mostly refinancings, below the $167 billion and $146 billion totals posted in the previous two years, according to the note.

High-grade spreads are eyed to tighten 10 bps in September, the analysts said.

Market tone was positive in the high-grade space early Thursday.

The Pimco Investment Grade Corporate Bond index rose 0.25% to 115.97.

The iShares iBoxx Investment Grade Corporate Bond ETF was up 0.24% at 136.05.

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