FS KKR Capital taps notes; new supply eyed; financial paper firms; Westpac Banking tightens

By Cristal Cody

Tupelo, Miss., July 19 – FS KKR Capital Corp. tapped the high-grade primary market on Friday with a $175 million add-on to its 4.75% notes due May 15, 2022.

The company’s notes received investment-grade ratings in June from Moody’s Investors Service, Inc.

High-grade issuers priced more than $14 billion of bonds over the week, missing market expectations of about $25 billion to $30 billion of supply this week.

Looking to next week’s primary action, syndicate sources forecast about $15 billion to $20 billion of new issuance.

This week, deal volume was concentrated in the financial sector following the release of second quarter earnings reports from companies including Morgan Stanley, Bank of America Corp. and PNC Financial Services Group, Inc.

In the secondary market, new bank and financial paper priced this week tightened, market sources report.

Bank of America’s $2.5 billion of 3.194% fixed-to-floating-rate senior notes due July 23, 2030 (A2/A-/A+) priced on Thursday headed out 3 basis points better.

Morgan Stanley’s $2 billion of 2.72% fixed-to-floating-rate senior notes due July 22, 2025 priced in the previous session traded 4 bps tighter on Friday afternoon.

Bank of Nova Scotia’s debut green bond offering of 2.375% bonds due Jan. 18, 2023 that priced on Monday improved about 4 bps in the secondary market.

Also, Westpac Banking Corp.’s $2.25 billion of subordinated notes (Baa1/BBB/A+) priced in two tranches on Tuesday firmed about 8 bps to 14 bps in the secondary market.

Existing bank and financial paper traded mostly about 1 bp to 6 bps better on Friday, a source said.

Citigroup Inc.’s notes were flat to 5 bps tighter in the secondary market over the session.

The Markit CDX North American Investment Grade 32 index closed Friday about 1 bp softer at a spread of 54 bps.

Meanwhile, inflows were stronger this week for high-grade funds with investment-grade funds seeing an inflow for the 20th consecutive week, according to research notes released on Friday from BofA Merrill Lynch.

High-grade purchases, including for bonds, Treasuries, agencies and mortgages, climbed to $3.67 billion in the week ended Wednesday from $2.25 billion a week ago.

Flows increased across maturities.

Short-term inflows rose to $1.37 billion from $910 million in the previous week, while excluding-short-term inflows increased to $2.3 billion from $1.33 billion last week, according to BofA Merrill’s report.

“Most of the increase in inflows came from high-grade ETFs [to $1.29 billion from $50 million in the prior week] rather than funds [which rose to $2.38 billion this week from $2.2 billion],” BofA Merrill Lynch credit strategist Yuri Seliger said.

FS KKR Capital reopens notes

FS KKR Capital (Baa3//BBB-) priced a $175 million add-on to its 4.75% notes due May 15, 2022 on Friday at a spread of 250 bps over Treasuries, according to an FWP filing with the Securities and Exchange Commission.

The notes priced at 101.207 to yield 4.274%.

The bonds were originally issued in a $275 million offering on April 30, 2015. The total outstanding is now $450 million.

J.P. Morgan Securities LLC, SunTrust Robinson Humphrey, Inc. and SMBC Nikko Securities America, Inc. were the bookrunners.

The Philadelphia-based business development company invests mainly in senior secured and subordinated debt of private middle-market U.S. companies.

Bank of America improves

In secondary trading on Friday, Bank of America’s $2.5 billion of 3.194% fixed-to-floating-rate senior notes due July 23, 2030 (A2/A-/A+) firmed to the 110 bps bid, 107 bps offered area, a market source said.

The notes priced on Thursday at par to yield a spread of 113 bps over Treasuries.

The issue will convert July 23, 2029 to a floating rate of Libor plus 118 bps to but excluding the maturity date.

The financial services company is based in Charlotte, N.C.

Morgan Stanley firms

Morgan Stanley’s $2 billion of 2.72% fixed-to-floating-rate senior notes due July 22, 2025 were quoted on Friday afternoon at 88 bps bid, 86 bps offered, a source said.

Morgan Stanley (A3/BBB+/A) priced the notes on Thursday at par to yield a spread of 92 bps over Treasuries.

The coupon will reset to a floating rate of SOFR plus 115.2 bps from July 22, 2024 to but excluding the maturity date.

Morgan Stanley is a New York-based financial products and services company.

Scotiabank’s green bonds

Bank of Nova Scotia’s 2.375% senior green bonds due Jan. 18, 2023 traded on Friday at 54 bps bid, 51 bps offered, a market source said.

The bank sold $500 million of the bonds (A2/A-/AA-) on Monday at a spread of 58 bps over Treasuries on Monday.

The financial services company is based in Toronto.

Westpac Banking tightens

Also in the secondary market on Friday, Westpac Banking’s 4.421% notes due July 24, 2039 traded at 166 bps bid, 163 bps offered, a source said.

The company sold $1 billion of the notes on Tuesday at a spread of Treasuries plus 180 bps.

The bank is based in Sydney, Australia.

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