[MORNING CALL:] M&A Matters: ...Continued

Due to Hurricane Helene, I’m afraid I had to cut “The Endgame” short last night, so I’ll try to pick up where I left off and elaborate further. Two of the four ex-SSA issues who tapped the high-grade public debt market yesterday were affiliated with M&A transactions, bringing the number of M&A-related new issues priced this year to 36 – there were 32 such transactions in 2023. It also brought the amount raised to $148.425bln, or 11.54% of the year’s ex-SSA volume. Last year, M&A-related deals accounted for 10.62% of total volume.

While all deals matter, why did yesterday’s two M&A-related deals matter the most? Well, they brought September ex-SSA issuance to $170.2bln, pushing it over the top, unseating September 2020 ($167.52bln) as the most prolific ex-SSA issuance September on record. Niagara Energy SAC raised $1.2bln via a 10yr note offering with the proceeds going to help fund its $1.3bln acquisition of Enel Peru. While Broadcom raised another $5bln to fund some of the debt taken on with its $69bln VMWare acquisition. The semiconductor company last tapped the market ($5bln) in July with the same purpose in mind.

Along with a $1bln perpnc7 junior subordinated note offering from Lloyds Banking and a $250m 10yr tap from MetLife brought ex-SSA issuance for the day to $7.45bln, raising this week’s total to $37bln, topping all weekly estimates, including the highest one of $35bln. The AVGO deal was well spoken for attracting $24bln (4.73x covered), while the book on the Lloyds deal peaked at $6bln, before settling in at 4.6bln (4.6x covered). The same could be said for NIAENE’s debut issue which came in 35bp from IPT/PX, while building a book of $4.1bln (3.42x covered). Overall, yesterday’s deals priced with little or no concession at all (0.20bp).

Not only did this month break the all-time September ex-SSA issuance record, but it also made September 2024 the third busiest month of the year, and the eleventh busiest ex-SSA issuance month on record - January 2017 ($172.53bln) is number 10. It also brought ex-SSA issuance for the year to $1.286.158bln. That equates to a 28.4% increase in issuance from last year, whereas the Street, on average, was only looking for a 5.4% incremental rise in issuance at the beginning of the year. Even the most bullish were only looking for an uptick of 11%.

Overall (SSA-inclusive) issuance has also been on a tear this month. With the addition of $45.985bln from SSA borrowers, September overall issuance stands at $216.185bln, making this only the fourth time ever that September overall issuance has surpassed the $200bln mark. Coming into this month, the Street didn’t think we would see any more than $165bln in overall issuance cross the tape this month. Much like ex-SSAs, this month ranks as the third busiest overall issuance month of the year, but the tenth busiest overall issuance month on record.

One would think that, for all intents and purposes, issuance for the month of September, and the quarter, come to a close today – there were new issues announced overnight. However, there’s still Monday. While we don’t expect any deals to price today, we’re almost sure we’re not done with September just yet.

As for general market conditions yesterday, while the Dow didn’t close at a record high, it did claw back (+260) most of the previous day’s losses. However, it was another record close for the S&P500 (+0.40%), while the Nasdaq (+0.60%) was able to keep its four-day winning streak alive. Traders attributed the rally to economic data that assured investors of the strength of the economy. Initial jobless claims (218k vs 225k) fell more than expected, indicating a strong labor market, while the final reading of Q2 GDP came in at 3%.

Over in the Treasury market, it was a rather mundane session for most of the yield curve, though there was some movement in the short end. The benchmark 10yr note yield spent the day hovering around the 3.79% level, closing unchanged on the day, while the long bond saw its yield edge lower by 2bp to 4.12%. At the opposite end of the spectrum, and the curve, the yield on the 2yr note shot up 7bp, closing at 3.60%. And the market seems to be following the same pattern this morning, with the benchmark 10yr still yielding 3.79%; the long bond still yielding 4.12%; while the 2yr note yield is 2bp higher at 3.62%. Corporate spreads are also unchanged, with the average high grade bond trading 92bp over comparable Treasuries. Now the markets will turn their attention to the release of August’s PCE price index (0.1% m-o-m, 2.3% y-o-y), the Fed’s preferred inflation metric, hoping for figures that show a cooling trend.

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2024 HIGH GRADE ISSUANCE - 09/23 WEEK, SEPTEMBER & 2024 ESTIMATES

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2024 HIGH GRADE ISSUANCE - RECENT MANDATES

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2024 HIGH GRADE ISSUANCE - 09/26 PRICINGS

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