Following strong US employment data for July, almost fifty issuers sold debt in just two days. Corporate debt markets were exceptionally active as borrowers rushed to borrow before conditions potentially deteriorate. Elsewhere, Ghana and Uruguay announced plans for sovereign ESG issuance.

Emerging markets

Aeropuerto Internacional de Tocumen raised USD1.86 billion in 20 and 40-year bonds, placing USD555 million and USD1.3 billion respectively priced at 4% and 5.125%. The former tranche was priced 50 basis points tighter than initial guidance. Total demand reached USD7.28 billion. The company's statement flags that 320 investors participated (69% from the USA and 24% from Europe). Proceeds will redeem existing debt, with the firm offering to repurchase its 5.625% 2036 and 6% 2048 issues and repay short-term bank debt.

ESG

Ghana has reiterated plans to arrange social bond financing later in 2021. It has the capacity to raise roughly USD2 billion under its USD5 billion program for 2021, having raised USD3 in a twice-subscribed sale in March. African Markets website recently cited Charles Adu Boahen, Minister of State at the Ministry of Finance who noted that social bonds would permit the government to refinance existing debt including loans undertaken to provide free secondary education.

In an interview with Latin Finance Herman Kamil, Head of Uruguay's sovereign debt management advised that the country was planning ESG issuance in late 2021 or the first quarter of 2022, noting that "we are still in the design process". Azucena Arbeleche, Minister of Economy and Finance, also stated on 2 August that the country was working on a sustainable sovereign bond with support from InterAmerican Development Bank and the UN. She advised that the Environment Ministry was working on a strategy to be announced later this year, including areas such as greater renewable energy use and the modernization of the country's transport fleet, alongside social programs including housing and childhood development.

Other debt

26 borrowers raised transactions in the US market on 9 August, with the rush of supply - which we calculate to have exceeded USD17 billion - being attributed to further signs of economic strength contained in the latest US employment release. Among larger issuers were Thermo Fisher with USD3.1 billion of seven, 10, and 20-year debt, with coupons of 1.75%, 2%, and 2.8%, helping to fund its acquisition of PPD, Inc., and BMW US Capital with USD2.5 billion in four tranches spanning three to 10 years.

Exceptionally busy conditions continued on 10 August with a further 21 issuers raising over USD20 billion. Intel sold a USD5 billion five-part issue spanning seven, 10, 20, 30, and 40 years. Proceeds are to refinance existing debt and for working capital and general corporate purposes. T Mobile sold USD1.3 billion of 3.4% 2052 debt with Alleghany Corporation also raising 30-year debt. Two banks sold perpetual debt, with Standard Chartered issuing USD1.5 billion of perpetual non-call seven-year AT1 at 4.3% versus 4.7% guidance. M&T Bank sold USD500 million of perpetual non-call five-year preference shares priced at 3.5%. HSBC sold USD1.5 billion of three non-call two-year debt at 0.732% and USD2 billion of eight-year (non-call seven-year) debt at 2.206%.

Supply then abated slightly but remained active: we have identified eleven borrowers that raised debt on 11 August. These include US aircraft leasing firm Air Lease, which raised USD1.1 billion split between three and seven-year debt, priced at 1.029% and 2.36%, 60 and 125 basis points over comparable US Treasuries. Cruise line Royal Caribbean raised USD1 billion of five-year debt at 5.5%, its third sale in 2021.

Sizeable deal-flow also was arranged late last week prior to the employment data:

Westlake Chemical Corporation raised USD1.7 billion of debt from a four-tranche sale on 5 August spanning three, 20, 30, and 40-year maturities, with coupons of 0.875%, 2.875%, 3.125%, and 3.375% according to its statement. Proceeds will help fund the USD2.15 billion acquisition of subsidiaries of Boral Industries and two smaller purchases.

Also on 5 August, Amgen announced a four-tranche offering spanning 2028, 2032, 2041, and 2052 maturities. Proceeds are to redeem liabilities maturing in 2022 and for general corporate purposes. Amgen raised USD5 billion, with some USD4.34 billion due next year (including USD1.482 billion of Euro-denominated debt due in February, and three issues due in May). It priced the four tranches at 1.664%, 2.072%, 2.82%, and 3.031%, margins of 65, 85, 105, and 115 basis points over comparable Treasuries.

Beckton Dickinson is tendering for over USD1.8 billion of 2022 and 2023 debt and for part of over USD3 billion of its bond issues due in 2024. The transaction will be funded by a multi-tranche funding in Euros: on 10 August it placed two, four, seven, and 20-year tranches, pricing the two-year bond with a zero coupon and 100.293% issue price: the long bond was sold at 1.336%.

Within the high-yield segment, casino and entertainment firm Bally Corporation raised USD1.5 billion on 6 August split between eight and ten-year debt. The two tranches bear coupons of 5.625% and 5.875% and were priced at 99.202% and 99.605%. It also announced a new revolving bank facility for USD620 million and term loans of USD1.945 billion. The new borrowings are to finance its merger with Gamesys Group, a UK online betting group purchased for GBP 2 billion in March.

US issuance data

SIFMA has released data on US debt issuance in the first half of 2021. On a year-to-date basis up to end-June, total fixed income issuance reached USD6.76 trillion, 19.6% above the corresponding period in 2020. Within the total:

• US Treasury sales rose by 58.5% from USD1.66trillion to USD2.63 trillion.
• Mortgage-related debt also grew swiftly, by 47.3% to USD2.26 trillion
• Corporate bond sales fell significantly, declining 21.5% from USD1.44 trillion to USD.113 trillion.
• Within this total, investment grade debt sales declined 31.6% from USD1.31 trillion to USD895.3 billion while high yield sales expanded 41% from USD227.2 billion to USD320.5 billion.
• A lower proportion of debt was sold on a fixed rate basis, with fixed rate debt sales dropping from USD1.394 trillion to USD1.048 trillion: floating rate bond issuance grew from USD141.8 billion to USD167.6 billion.

Using Dealogic data, SIFA also showed that total equity raising rose to USD281.4 billion from USD213.3 billion during the first half of 2021 versus the same period in 2020. IPO activity surged from USD32.1 billion to USD102.5 billion, a 219.5% increase, while secondary sales declined 7.1% to USD137.8 billion. Sales of preferred stock grew 25.1% to USD41.2 billion.

Implications and outlook

This week's corporate bond supply has been exceptional. August is traditionally a quiet month for new bond sales, reflecting the vacation season. The rush of supply did not force general market over-saturation: of those deals priced on 10 August, 14 opened at a premium while only eight showed discounts, according to BondEValue data: on the prior day, the split was 11-10.

The main supply driver appears to be the 943,000 gain in non-farm payroll in July and the decline in the unemployment rate by 0.5% percentage points to 5.4%. IHS Markit Economics also noted that "Average hourly earnings (AHE) rose 0.4% in July and are up 4.0% from July 2020. Over the last three months, AHE have risen at a 5.0% annual rate", with those in leisure and hospitality "surging 16.6% (annual rate) over the last three months". While bond issuers appear to have interpreted the data as pointing to early Federal Reserve tapering of their asset purchases, we highlight that that data is "just prior to the Delta variant outbreak", and thus less clear.

The earlier data for the first two quarters complied by SIFMA is now historical, but the decline in investment grade and fixed rate issuance suggests that many stronger corporate issuers already have arranged funding to lock in prevailing rates and extend their maturities, reducing their desire to undertake further issuance. The perception of recovery in the real economy and the ongoing search by investors for yield are both indicated by the impressive growth in high-yield bond issuance. By contrast, this week's rush to sell debt appears motivated by the goal of "getting it funded while you can", rather than waiting for the issuance rush after Labor Day.

Elsewhere, following Benin's recent precedent, the involvement of supranational entities in advising Ghana and Uruguay on ESG programs is a positive indicator for emerging market supply in this segment.

Posted 16 August 2021 by Brian Lawson, Senior Economic and Financial Consultant, Country Risk, S&P Global Market Intelligence