Time Warner jumbo caps off week of IG market reawakening

NEW YORK, June 8 (IFR) - Time Warner Inc's successful US$1bn fund-raising via a two-part bond issue on Friday capped off a week that showed investor and issuer sentiment towards the US investment-grade bond market had turned a corner - all on the back of a modest positive earlier in the week.

The week ended with volumes of US$16.11bn, beating supply estimates of the US$10bn area after 22 issues were priced. Many came within initial guidance, while issuers ending up paying tighter-than-expected new issue concessions.

The continued preponderance of Triple B and Single A rated names provided variety in flow and suggested the market was emerging from a prolonged period of uncertainty.

In the previous week, only nine issues were completed, but several jumbo-sized trades helped push volume to US$13.45bn (US$1.494bn average deal size). The average deal size this week worked out at US$732.25m, with the largest deal coming in at US$2.25bn.

The number of deals done this week is the most since the week ended March 30. The busiest week on record for 2012 was the week ended March 9 when 34 deals were priced for US$40.642bn.

Nine domestic corporate issuers hit the market this week for US$6.8bn, while ten domestic financial institutions group, or FIG, issuers printed for US$8.11bn. Only two Yankee deals priced for US$1.1bn. Single-A issuers accounted for 45.6% of the weekly total while Triple-B issuance comprised 37.3%.

SUPPLY MEETS DEMAND

Leaving the numbers aside, the attraction of issuing into this market is the cost competitiveness it is offering to a wide variety of issuers. This week alone, records for the tightest coupon were matched while new issue concessions for many issuers slammed tighter.

And this in a week which started off with a goose egg for issuance on June 5. All it took to turn the mood from morose to cheery was a strong equity market on June 6.

The general view at the moment seems to be that things could get worse so issuers should be more than willing to jump in and take advantage of the current issuance window.

The rush of issuance is being matched by demand among investors keen to put money to use.

One source pointed out that redemptions in June were around US$60bn - the largest month of the year.

"So you've got US$60bn in redemptions in a month most think will have bond issuance volumes of about US$50bn. I just think this has to become a factor at some point. Maybe you're starting to see that. Fund flows aside, guys have money they need to put to work," he said.

The rush to buy quality credits helped food supplier Sysco Corp match the lowest coupon on record of 0.55% for a three-year on June 6. For more, see [ID: nL1E8H6G3B]

Several issuers achieved negative new issue concessions and some issuers found strong investor interest despite illliquidity in their outstanding bonds.

Against that background, it was not a surprise to see Time Warner's (Baa2/BBB) US$500m 30-year pricing with a spread of 225bp over Treasuries, or inside guidance of 230bp area.

The company's US$500m 10-year priced with a spread of 180bp versus guidance of 185bp area. Book sizes were not immediately available but there was talk about a US$8bn book for the US$1bn issue.

Given the current climate, there is growing optimism that June volumes may easily touch the US$50bn area forecast. At the very least, the week ending June 16 is expected to total US$10bn-US$16bn.

Year-to-date 2012 investment grade volume is now at US$419.595bn from 387 issues. 2012 new issue volume is just slightly lagging the pace from a year ago, when 364 deals were priced for US$423.562bn during the same period.

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