Heavy high-grade bond supply eyed in short holiday week; energy space strong

By Cristal Cody

Tupelo, Miss., Feb. 16 – High-grade deal volume is expected to ramp up quickly after the holiday break with whispers of $50 billion or more of supply anticipated to squeeze into the sessions after the holiday, sources said.

Supply in the week to the holiday run-up totaled $37 billion and included deals from the mergers-and-acquisitions space.

Bristol-Myers Squibb Co. priced its blowout $13 billion nine-tranche offering of notes (A2/A) on Wednesday to fund its acquisitions of Karuna Therapeutics, Inc. and RayzeBio, Inc.

Bristol-Myers Squibb announced in December that it will acquire RayzeBio for $3.6 billion and Karuna Therapeutics for a total equity value of $14 billion.

In the secondary market, the notes tightened about 6 basis points to 7 bps across the maturities, a market source said.

The deal’s largest tranches, the $2.75 billion of 5.55% notes due 2054, firmed 6 bps to 109 bps offered, while the $2.5 billion of 5.2% notes due 2034 tightened to 89 bps offered.

Energy space

Meanwhile, M&A action in energy and power names has soared so far this year to $63.7 billion, up 83% from a year ago, LSEG Data & Analytics said in a report Friday.

DTE Energy Co. tapped the high-grade primary market on Monday with a $1.2 billion offering of 5.1% senior notes due 2029 (Baa2/BBB/BBB) with the bonds printing better than talk and firming in the secondary market.

The issue priced at a spread of 103 bps over Treasuries, tighter than talk at the 125 bps area, a source said. The bonds were trading about 5 bps better in the secondary market.

Some of the week’s top announced M&A deals included the transaction announced Monday that Diamondback Energy Inc. will acquire Endeavor Energy Resources LP.

According to a note Friday from Hargreaves Lansdown analyst Sophie Lund-Yates, oil prices are approaching $83 a barrel amid geopolitical tension.

“The price of Brent crude is approaching $83 a barrel as it advances for the second week in a row,” Lund-Yates said. “OPEC+ efforts to control supply, coupled with ongoing geopolitical tension in the Middle East, means the price has been squeezed upwards.”

West Texas Intermediate crude oil benchmark futures for March delivery settled Friday $1.16 higher at $79.19 a barrel.

Energy issuance is expected to continue this year.

“Now they’re back in investment-grade ratings, and we’re seeing energy companies are having to pay for that, but they’re getting deals done and on a good quality basis,” a source said. “Oil will probably stay at these prices or higher as we move into the spring and summer. I think you’ll continue to see issuance.”

Issuers including Apache Corp. and Occidental Petroleum Corp. are now traded as high-grade issues.

Occidental Petroleum’s paper is split-rated with high-grade ratings from Moody’s Investors Service and junk ratings from S&P Global Ratings but “trades like it’s an investment-grade issue,” a source said.

The company’s 8 7/8% notes due 2030 (Baa3/BB+) were quoted on Friday at 116 and yielding 5 5/8%.

Moody’s upgraded the company’s more than $15 billion of face debt to investment grade in May 2023.

Other energy names also remain attractive to both the high-grade and high-yield secondary markets so far this year.

Talos Production Inc.’s new 9% senior secured second-priority notes due 2029 and 9 3/8% senior secured second-priority notes due 2031 (B3/BB-/B+) that priced at par on Jan. 25 are now trading around 102, 102½, a source said on Friday.

The notes were sold in $625 million tranches.

Fund flows drop

Inflows into short-intermediate corporate investment-grade debt funds/ETFs softened to $2.28 billion over the past week ended Wednesday from $2.83 billion in the prior week, according to Refinitiv Lipper U.S. Fund Flows.

Net inflows year to date total over $11 billion.

Flows into high-grade bond funds and ETFs focused on high-grade corporates, agencies, mortgages and Treasuries totaled $4.7 billion in the week ended Wednesday, down from $6.03 billion of inflows in the prior week, according to a BofA Securities note.

Investment-grade fund inflows fell to $1.91 billion from $5.92 billion a week earlier.

High-grade ETF inflows climbed to $2.8 billion over the past week from $110 million last week.

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