Busy high-grade corporate deal pace continues; M&A-related supply increases; flows up

By Cristal Cody

Tupelo, Miss., Feb. 9 – Investment-grade bond supply ramped up over the week with more than $41 billion of notes sold, outpacing the $25 billion to $30 billion of volume expected by market participants.

Pricing action continued into Friday with a four-tranche deal offered from Philip Morris International Inc.

In the week ahead, issuance may pull back slightly to about $30 billion to $35 billion with the focus on the release of the January inflation report due Tuesday, sources said.

Corporate high-grade deal volume is expected to total well north of $100 billion in February with some issuance anticipated from funding related to the mergers-and-acquisitions space, according to market sources.

Though the year failed to start off with a much-expected major bond offering related to the $24.6 billion merger of Kroger Co. and Albertsons Cos. Inc. that was pushed back, it did see some M&A-related issuance after a quiet December.

In January, a record month that saw nearly $200 billion of corporate bond volume, there was $2.3 billion of M&A-related IG issuance, up from zero in December, according to a BofA Securities research note this week.

The pipeline of announced deals with potential high-grade funding implications increased to $403 billion in January from $331 billion in December, BofA said.

North American M&A announcements declined to $184 billion in January from $193 billion in December.

Some of the deals, like Kroger’s expected eventual offerings in the high-grade space, take some time before they hit the primary market, sources noted.

Rogers Communications Inc. priced $2.5 billion of senior notes (Baa3/BBB-/BBB-) in five- and 10-year tranches on Wednesday with proceeds to repay a portion of a term loan facility taken out to fund its April 2023 acquisition of Shaw Communications Inc.

The notes were trading about 2 basis points tighter to unchanged in the secondary market, a source said.

The $1.25 billion tranche of 5.3% notes due 2034 was wrapped around issuance. The notes priced at a spread of 130 bps over Treasuries, tighter than talk at the 165 bps over Treasuries area.

Kroger was expected to tap the primary market in January for around $10 billion of bonds to help finance the acquisition of Albertsons.

In January, Kroger and Albertsons extended the merger timeline through Aug. 17 as Kroger seeks to clear government regulation hurdles, which includes plans to divest stores to C&S Wholesale Grocers, LLC.

A few M&A-related bond deals are expected on the horizon later this year, including from Bristol-Myers Squibb Co., a source said.

Bristol-Myers Squibb announced in December that it will acquire RayzeBio, Inc. for $3.6 billion and Karuna Therapeutics, Inc. for a total equity value of $14 billion. Both deals are expected to be financed with new debt and close in the first half of the year.

AbbVie Inc. also is expected to tap the market later this year to help finance its acquisitions of two companies announced in November and December and scheduled to close by mid-year.

The company plans to acquire Cerevel Therapeutics Holdings in a deal valued at $8.7 billion and ImmunoGen, Inc. in a transaction valued at $10.1 billion. Both mergers are expected to be funded with cash and debt, a source said.

Looking to the fall, BlackRock, Inc. is penciled in to tap the investment-grade primary market for $3 billion to help finance its acquisition of Global Infrastructure Partners.

The acquisition for $3 billion in cash and around 12 million shares of BlackRock’s common stock was announced in January and is expected to close in September.

Fund flows climb

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

Flows were up from $2.6 billion of inflows in the prior week.

Net inflows year to date total $9.4 billion.

Flows into high-grade bond funds and ETFs focused on high-grade corporates, agencies, mortgages and Treasuries jumped to $6.03 billion in the week ended Wednesday from $840 million a week earlier, according to a BofA research note.

Investment-grade funds saw their strongest weekly inflow since February 2021 with $5.92 billion of inflows in the period, which followed a $1.32 billion outflow a week ago.

High-grade ETFs had inflows of $110 million in the week ended Wednesday, down from $2.16 billion of inflows in the prior week.

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