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Published on 12/14/2020 in the Prospect News Investment Grade Daily.

Microchip upsizes notes; high-grade volume slows; thin supply forecast; credit spreads ease

By Cristal Cody

Tupelo, Miss., Dec. 14 – Microchip Technology Inc. priced an upsized $1.4 billion of senior secured notes due Feb. 15, 2024 (Baa3//BBB-) in a Rule 144A and Regulation S deal on Monday.

The notes priced with a spread of 80 basis points over Treasuries, on the tight side of guidance and better than initial talk in the 100 bps area.

The offering was upsized from $1 billion.

Supply this week is expected to be front-loaded with few high-grade issuers anticipated for the rest of December, sources said.

The Federal Reserve kicks off its two-day monetary policy meeting on Tuesday.

Although little activity is expected on Christmas Eve, already a scheduled early close for the bond markets, most federal employees will have the day off after president Donald Trump signed an executive order on Friday designating it as a federal holiday.

Syndicate sources forecast zero to up to about $10 billion of issuance for this week and the rest of the month.

High-grade companies sold more than $22 billion of issues last week, beating supply expectations of about $15 billion to $20 billion of deal volume.

Month to date, more than $40 billion of investment-grade bonds have priced, also outpacing forecasts of about $25 billion to $35 billion of issuance in December.

Deal volume year to date has been staggering with more than $1.8 trillion of high-grade bonds priced, compared to $1.1 trillion of issues sold in 2019.

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Market mixed

Spreads softened last week with several new bonds trading wider than issuance in secondary trading, a source said.

Ascot Group Ltd.’s 4.25% senior notes due Dec. 15, 2030 (/BBB/) that priced Wednesday in a Rule 144A and Regulation S offering widened to 344 bps bid by the end of the week.

The company sold $400 million of the notes at a spread of 332.1 bps over Treasuries.

Initial price talk on the notes was in the 4.5% area.

Market tone was mixed on Monday with equities giving back gains as the roll-out of a Covid-19 vaccine that was approved by the U.S. government for Americans on Friday began and as electors cast votes that affirmed president-elect Joe Biden’s win in the November election.

The Nasdaq was up more than 1.1% over the morning but closed with a 0.5% gain, while the S&P 500 and the Dow Jones industrial average both declined on the day.

In the high-grade space, the iShares iBoxx Investment Grade Corporate Bond ETF slipped 0.07% to $137.18.

The PIMCO Investment Grade Corporate Bond index improved 0.03% to $116.48.

Credit spreads softened modestly from Friday.

The Markit CDX North American Investment Grade 35 index ended at a spread of 54.19 bps, compared to a spread of 53.9 bps on Friday.


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