High-grade supply quiets after heavy volume; Entergy postpones deal; credit spreads widen

By Cristal Cody

Tupelo, Miss., March 18 – The investment-grade market stayed quiet on Wednesday as stocks sank and credit spreads widened over the session following more than $27 billion of bonds priced in the previous session.

Investment-grade credit spreads moved out nearly 24 basis points on the day.

The Markit CDX North American Investment Grade 33 index finished at a spread of 148.03 bps from 124.21 bps on Tuesday.

At the start of March, the index was at a 65.06 bps spread.

Stocks tanked Wednesday with the S&P 500 down 5.17% and the Dow Jones industrial average off 6.3% from coronavirus-related volatility after closing Tuesday better.

The New York Stock Exchange announced on Wednesday that it will close the equities and options trading floors and move to full electronic trading beginning with the market’s open on Monday.

U.S. stimulus measures including reports of cash payments to Americans helped quell risk-off demand and pushed Treasury yields higher with the benchmark 10-year note yield past 1% over the morning. The 10-year benchmark closed up 26.9 bps at 1.266%.

On Tuesday, high-grade supply issuers in the primary market included Bank of America Corp., Consumers Energy Co., Dominion Energy, Inc., Exxon Mobil Corp., Goldman Sachs Group Inc., Oncor Electric Delivery Co. LLC, PepsiCo. Inc., Progressive Corp., Union Electric Co. and Verizon Communications Inc.

Entergy Corp. postponed its two-part registered offering of senior notes (Baa2/BBB/) scheduled for Tuesday, a source said. The deal had included five-year notes that were initially talked to price at the Treasuries plus 275 bps area and 10-year notes with price talk in the 287.5 bps area.

Proceeds were planned to be used with other available funds to repay $450 million of the company’s 5.125% senior notes due Sept. 15, 2020, a portion of its commercial paper and/or a portion of the debt outstanding under its $3.5 billion revolving credit facility and/or for general corporate purposes.

FHLBank announced it will not issue a Global note on Wednesday with its next funding opportunity scheduled for April 14.

The bond offerings on Tuesday are the first deal issuance seen this week following just over $7 billion of supply last week.

Numerous ratings downgrades and revised outlooks were announced, including for Delta Air Lines Inc., Sysco Corp., Southwest Airlines Co., Walt Disney Co. and Whirlpool Corp.

“Well, it’s Wednesday, and we face another day right out of a post-apocalyptic zombie movie,” Confluence Investment Management strategists said in a note. “While there is still no sign of zombie armies marching on Washington, there is a more worrying sign that global financial markets are seizing up in a desperate scramble for liquidity.”

Americans are being urged to self-isolate and work from home if possible with businesses and schools shut or shortening hours across the country to stem the spread of the coronavirus. Public areas, including beaches, in some states are now closed.

Charter, Steel Dynamic soften

In the secondary market, high-grade bonds mostly moved out with spreads in the telecommunications sector about 15 bps to 80 bps wider, a source said.

Charter Communications, Inc.’s 4.8% reopened senior secured notes due March 1, 2050 (Ba1/BBB-/BBB-) headed out weaker at 87.75 and eased more than 35 bps on the day to the 388 bps interpolated area.

The notes were quoted on Jan. 24 with a 107 handle and at the 227 bps bid area.

Charter priced a $1.3 billion add-on to the issue on Dec. 2 at 101.964 to yield 4.677% and a spread of Treasuries plus 240 bps.

The notes first priced in a $1.5 billion offering on Oct. 15, 2019 at 99.436 to yield 4.836% and a spread of Treasuries plus 260 bps. The total outstanding is $2.8 billion.

The notes were issued through subsidiaries Charter Communications Operating, LLC and Charter Communications Operating Capital Corp.

Steel Dynamics, Inc.’s 3.45% notes due April 15, 2030 (Baa3/BBB-/BBB) softened to 91 from 94.75, a source said.

The Fort Wayne, Ind., steel producer and metals recycler sold $600 million of the notes on Dec. 9 at at 99.736 to yield 3.481% and a Treasuries plus 165 bps spread.

New issues priced on Tuesday were seen better in the secondary market following issuance, a source said.

Progressive’s $1 billion of senior notes (A2/A/A) priced in two tranches on Tuesday tightened about 15 bps to 18 bps.

The Mayfield Village, Ohio-based insurer’s $500 million of 3.2% 10-year notes, priced at par to yield a spread of 225 bps over Treasuries, firmed 15 bps.

Initial price talk was in the Treasuries plus 250 bps area.

Progressive’s $500 million tranche of 3.95% 30-year notes, priced at 99.148% to yield 3.999% and with a Treasuries plus 245 bps spread, were quoted better at the 227 bps area.

The 30-year notes were talked to print in the 262.5 bps spread area.

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