The Investment-Grade Bond Sales Flood Is Set to Recede Next Week

(Bloomberg) -- After the fourth-biggest month for U.S. high-grade sales on record, companies are expected to bring a more modest $25 billion to kick off the first full week of April.

Investment-grade borrowers rushed to the market all March before rates edged even higher. The $230 billion volume dwarfed consensus expectations of $135 billion and was the largest beat in at least three years, according to Bloomberg-compiled data. April is projected to slow to about $90 billion to $100 billion -- easing pressure on yields.

The benchmark high-grade U.S. credit index fell 7.7% in the first quarter, almost equaling the slump of the global financial crisis. And losses for the year could jump into the mid-teens, according to Bloomberg Intelligence -- the worst since records began in 1973.

“Technicals should continue to be strong, if history is any guide. April is typically one of the strongest months of the year, due to earnings blackouts keeping issuance on the low side,” Barclays Plc's Bradley Rogoff and Dominique Toublan wrote in a note Friday.

The new bond-offering estimates for April include a potential jumbo deal from Oracle Corp. to fund its acquisition of medical-records systems provider Cerner Corp. Corebridge Financial Inc. was the latest company to successfully place a sizable trade, selling $6.5 billion of bonds Thursday with peak order books of $33 billion. March also brought the first intraday inversion of the 2-year-10-year Treasury yield curve since 2019, a signal the U.S. could be heading into a recession.

The Federal Reserve will be releasing the minutes of its March 16 meeting on Wednesday, April 6.

Junk, Still Slow, Finds Windows

The U.S. leveraged loan market rounded out the first quarter with one of the slowest weeks of the year for issuance. Bankers, for now at least, are focused on getting a handful of deals over the line to fund buyouts.

“M&A financing is interesting right now as there are deals coming forward that were committed to in better markets before Russia's invasion of Ukraine,” said Peter Toal, global co-head of fixed-income syndicate at Barclays, in an interview with Bloomberg.

“The good news is that they are finding levels,” he said.

A more constructive tone this week helped packaging firm Novolex Holdings boost the size of a sustainability-linked loan funding its buyout by Apollo Global Management Inc. to $3 billion from $2.63 billion and shrink the discounted price to 97.5 cents on the dollar from 96 cents. A junk-bond sale, the other portion of the debt package, was cut by $370 million.

“What we're generally seeing from the investor side is risk-off. They're either sitting on their hands and waiting for the world to be clearer, or not coming into deals with the same conviction,” said Toal. In other sell-offs you would have seen investors come in by now as markets look cheap, he added.

Toal isn't sweating about the pipeline of buyout financings that need to get done in the face of market volatility. Aside from multi-billion debt sales yet to come forward to finance the buyouts of software company Citrix Systems Inc. and Nielsen Holdings Plc, upcoming deals are generally smaller and therefore manageable, he added.

A private-equity consortium has obtained committed debt financing of about $11.15 billion to finance its acquisition of New York-based Nielsen, which provides audience data services to many of the media industry's premier networks, Bloomberg reported earlier this week. Earlier this year, a group of 10 banks provided $16 billion of debt commitments to finance Vista Equity Partners and Elliott Investment Management's take-private deal of Citrix.

Scientific Games Corp., which owns a portfolio of gaming products and services, will hold a lender call Monday for a $2.2 billion loan to refinance debt in what is a light pipeline for deals next week. A bank meeting for a $1.285 billion loan funding the buyout of CRH Plc's Oldcastle Building Envelope unit by KPS Capital Partners is also scheduled for the same day.

More borrowers may decide to brave the market following a recovery in secondary prices and two straight weeks of inflows into loan funds. Financing for the buyout of CRH Plc's Oldcastle Building Envelope unit by KPS Capital Partners LP could also be announced as early as next week, according to a person familiar with the matter.

The junk-bond calendar is also light after the slowest first-quarter for issuance since 2016, according to data compiled by Bloomberg. But demand is picking up with funds that invest in U.S. high-yield bonds breaking an 11-week streak of outflows, registering an influx totaling $1.24 billion for the week ended March 30.

New issues sold this week, including those from Novolex and Kentucky Derby racetrack owner Churchill Downs Inc., have also traded higher in the secondary -- another sign that the market is stabilizing -- while yields fell, making borrowing costs more attractive for companies looking to raise debt.

And in distressed, Ion Geophysical Corp. has a forbearance agreement expiring on April 4.