Two out of the three legs of the primary U.S. financial markets stand on relatively firm ground as we enter the new week.
Not only is corporate bond market issuance kicking up again, but for the first time this year, the value of bonds officially forecast to price during the week is dwarfed by that of initial public offerings of stocks.
Venture capital still remains a weak leg.
In the meantime, issuance of both stocks and bonds is continuing to pick up, propelled, in part, by lower interest rates and the perception that these rates will hold steady, at least for the short haul, with more than two full weeks before the next Federal Open Market Committee meeting and no major economic news, other than Thursday’s Producer Price Index.
Last week saw about $13 billion of corporate bond issuance, more than twice the $6.2 billion seen the week before that. In the meantime, corporate bonds continued to score gains, with yields dropping on every credit rung above single-C and most of this paper outperforming Treasurys.
In equities, the secondary markets continue on a solid, if not robust footing. The Dow Jones Industrial Average fell fractionally last week, while the Nasdaq Composite was up nearly 3 percent.
But primary issuance of stocks is poised to stage an upsurge.
To put the matter into perspective, the total pipeline of investment- grade and junk bond issues for the coming week is hovering at about $4.8 billion, much higher than the week before.
But the tally of IPOs slated to price this week is higher than that. Based upon announced ranges, some $8.3 billion to $9.3 billion is expected, according to IPO Express.
Big Bet on Kraft
Of course, this total is very concentrated, with the Kraft Foods spinoff via Credit Suisse First Boston expected to consist of 280 million shares at $27 to $30 a pop and price on Tuesday or Wednesday.
Another $800 million to $900 million of issues is expected:
- General Maritime Corp. is expected to issue seven million shares at $17 to $18 via Lehman Brothers on Monday or Tuesday.
- Also on Monday or Tuesday, Willis Group Holdings, the world’s No. 3 insurance broker, is expected to issue 20 million shares at $10 to $12 via Salomon Smith Barney.
- Odyssey Re Holdings plans 17.1 million at $16 to $19 via Banc of America Securities on Wednesday or Thursday.
Corporate Issues Active
Corporate bond issuance is also expected to be active this week.
In investment grade, the more than $2 billion expected to price includes some new names like Fosters Brewing Group, which plans $500 million of Baa1/BBB+ 10-year bonds in Europe and the U.S., Pearson PLC, publisher of The Financial Times, and part- owner of The Economist Group, which is preparing to privately sell $500 billion of baa1/BBB+ globals via Morgan Stanley Dean Witter.
New names in the $2.5 billion junk pipeline include Mediacom Communications, which plans $400 million of B2/B+ some time this month, MacDermid, a maker of specialty chemicals planning $300 million of 10-year senior subordinated BB- notes, and Extended Stay America, a hotel chain planning $1.2 billion of yet-to-be defined high-yield bonds and loans to refinance existing debt.