NEW YORK, Aug 8 (IFR) - Why a company like Tyson Foods will
jump through hoops to keep an investment-grade rating was made
blindingly clear last week, when the high-grade new-issue market
shrugged off mayhem in the junk bond market and priced almost
US$23bn of deals.
After managing to cling on to its Triple B ratings, Tyson
received US$20bn of orders from investors for its offering of
US$3.25bn of five, 10, 20 and 30-year notes.
Had it not cared about being junk-rated by one of the major
ratings agencies, it would have faced a high-yield market
littered with pulled deals and plunging secondary prices as a
record US$7bn fled the riskier asset class.
"There has been a huge bifurcation between the two markets,"
said Jonathan Fine, head of investment-grade debt syndicate at
Goldman Sachs. "Although the large outflow number [of US$7bn]
for high-yield could make for more challenging times, I don't
expect it will stop borrowers from tapping the investment-grade
The major difference between the two markets, according to
analysts and bankers, is the technicals.
While high-yield bonds have succumbed to over-valuation
fears and geopolitical concerns, investment-grade funds have
continued to see inflows and benefit from investors seeking high
quality as Treasury yields remain low.
"The technical backdrop for investment grade is much
stronger than that for high-yield, with the latter more
sensitive to total returns and retail fund flows," said Sivan
Mahadevan, head of credit strategy at Morgan Stanley in the US.
"Investment grade, on the other hand, could see significant
institutional demand at higher and lower rates."
When rates are low, money flows out of the Treasury market
and into the next highest quality fixed-income asset class -
investment-grade corporate bonds. And when rates rise, outflows
from retail is offset by institutional investors coming in for
the higher yields.
Good execution of deals also goes a long way to generating
goodwill in the new issue market.
The sheer weight of orders brought in by bookrunners JP
Morgan and Morgan Stanley helped Tyson's deal tighten in 9bp in
The next day, GE's credit card spin-off, Synchrony
Financial, debuted with a US$3.6bn offering of three, five,
seven and 10-year notes, which attracted as much as US$17.4bn of
demand and tightened as much as 12bp in the aftermarket.
"The performance of Tyson and Synchrony really left a good
taste in investors' mouths and now we've seen nine opportunistic
issuers come to market today," said one head of
syndicate. "Tyson and Synchrony helped to take the focus away
from three other deals [Comcast, American Tower and Discover
Financial Services] that widened slightly during the week."
The week ahead is expected to be busy, with corporates
squeezing in offerings ahead of the usual late August slowdown.
"We expect the new-issue market to stay open [in the weeks
ahead], although heightened geopolitical risk could increase the
size of new-issue concessions," said Dan Mead, senior syndicate
manager at Bank of America Merrill Lynch.
Investment-grade buyers are as concerned as the next
investor about geopolitical risks. But with money to put to
work, it usually just takes slightly higher new-issue
concessions to reel them into new deals.
As in other times of volatility and nervousness, syndicate
managers will persuade borrowers to offer some extra spread over
fair value, and smooth treasurers' feathers by noting how much
the Treasury market has rallied.
(Reporting By Danielle Robinson; Edited by Philip Wright)