US CORP BOND WRAP-Primary issuance subdued by price, growth

By Davide Scigliuzzo

NEW YORK, Oct (HKSE: 3366-OL.HK - news) 6 (IFR) - US corporate bond issuance was subdued for a second straight day on Tuesday, as the previous session's rally in stocks ran out of steam due to concerns about global growth.

Four borrowers stepped into the fray - Russia's Norilsk Nickel, Mexico's state-owned trade bank Bancomext, Royal Bank of Canada and Rolls-Royce - but that was it for the primary.

The International Monetary Fund meanwhile cut its global growth forecast for the second time this year, giving bears another reason to fret about the long term.

RBC (Other OTC: RBCI - news) and Rolls-Royce offered little in the way of concessions but their trades did not seem to offer a true test of investor appetite on the day.

The former broke a two-month lull for covered bonds in the US market by pricing a new US$1.75bn five-year fixed note at 72bp over mid-swaps.

Rolls-Royce, meanwhile, capitalized on its rarity value and was able to ratchet in pricing by roughly 30bp on its US$1.5bn two-part offering.

But Norilsk and Bancomext had to offer investors generous terms to get their deals over the line, underscoring that the buyside now wants hefty returns for taking on new risk.

First (Other OTC: FSTC - news) out in European hours, Norilsk started marketing its new seven-year at least 75bp back of its own curve at a yield of 7% area.

The company, which became the first pure CEEMEA issuer to tap the US dollar bond market in over two months, was able to bring in pricing by 37.5bp to a final yield of 6.625%.

Bancomext which executed its trade - its first in the dollar bond market since 2004 - as market tone worsened in US hours, could only tighten pricing on its 10-year by 12.5bp from initial price thoughts of T+150bp.

It (Other OTC: ITGL - news) ended up offering a pick-up of close to 100bp over Mexico's sovereign curve.

Several issuers appear reluctant to pull the trigger on pending deals, given the current push-back from investors.

"It takes two to tango," said Jon Duensing, deputy chief investment officer at Amundi Smith Breeden.

"In an environment of heightened uncertainty, lenders tend to become more conservative and pull in their horns a little bit. In many cases, it's just a question of price."

Duensing said that while the pace of primary activity has slowed recently, the window for issuers will slowly reopen as markets stabilize.

JUNK LULL ENDING?

In high-yield, SunOpta Foods could break an eight-day lull in primary activity if it prices a US$330m seven-year non-call issue as planned on Wednesday.

The company, which will use the funds to finance its acquisition of Sunrise Holdings, was forced to significantly increase the yield since the deal was announced on September 15.

It announced official price talk of 10% area on Tuesday, wide to whispers of around 8% circulated three weeks ago.

Over that period, the average yield on Bank of America (Swiss: BAC.SW - news) Merrill Lynch's US high-yield index widened by nearly 100bp, reaching 8.22% Friday - its highest level in nearly four years. (Reporting by Davide Scigliuzzo; Editing by Marc Carnegie and Shankar Ramakrishnan)