Morning Commentary: CVS Health holds calls; market action quiets; high-grade inflows decline

By Cristal Cody

Tupelo, Miss., March 2 – CVS Health Corp. planned to kick off investor calls on Friday for an upcoming bond deal as large as $45 billion.

CVS Health (Baa1/BBB+) intends to hold fixed income investor calls on Friday and Monday ahead of a possible $40 billion to $45 billion bond offering to fund its $69 billion cash and stock acquisition of Aetna Inc., according to a market source.

BofA Merrill Lynch, Barclays, Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC are the call arrangers.

CVS Health’s acquisition of Aetna (Baa2/A/A-) is expected to close in the second half of 2018.

Shareholders at both companies are scheduled to meet March 13 to approve the merger.

Also, starting Monday, Toyota Industries Corp. (A1/AA-) will hold a roadshow in the United States, Europe and Asia for a benchmark dollar-denominated bond offering, according to a market source.

BofA Merrill Lynch, Citigroup Global Markets Inc., JPMorgan, Mizuho Securities USA Inc., Morgan Stanley & Co. LLC, Nomura Securities International, Inc. and SMBC Securities America, Inc. are the arrangers for the Rule 144A and Regulation S transaction.

Attention on politics

Otherwise, activity in the high-grade bond market was fairly quiet early Friday with investors’ focus on politics after heavy supply came in the first half of the week.

The three-month Libor climbed 1 basis point to 2.02%, a source said.

Inflows weaken

For the week ended Feb. 28, inflows to bonds decelerated to $1.04 billion from $4.01 billion a week earlier, Yuri Seliger, an analyst with BofA Merrill Lynch, said in a note released on Friday.

“While flows improved for high yield, they were weaker for high grade, government bonds and munis,” Seliger said.

Weekly inflows to high grade declined to $1.63 billion from $2.71 billion for the week, according to the note.

“Flows turned negative for short-term high grade for the first time since December with a $0.36 [billion] outflow,” Seliger said. “This compares to a $0.60 [billion] inflow to short-term high grade in the prior week.”

Outside of short-term, high-grade inflows slowed to $1.99 billion from $2.11 billion.

High-grade inflows declined for both funds to $1.05 billion from $1.81 billion and ETFs to $59 million from $90 million, according to the note.

Looking at the week’s secondary trading, investment-grade volume dropped to $17.01 billion on Thursday from $22.99 billion on Wednesday, $21.34 billion on Tuesday and $22.18 billion on Monday, according to Trace.

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