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Real-Time Capital Markets Perspectives

  • The Fed recently released minutes from its September 16th meeting that featured extensive discussion about the economy’s better than expected performance due to the fiscal stimulus packages provided
    • Despite the fiscal relief, GDP plunged 31.4% in Q2 2020 but is expected to be on track to recoup most of those losses in Q3 2020
  • Container throughput at the Port of Los Angeles hit an all-time high in Q3 2020, handling 2.7 million containers from July through September, up by 5.9% from the same quarter a year ago and exhibiting few signs of slowing down
    • Total volume for Q3 2020, typically the peak season for container shipping, was also a 38% increase over the pandemic-hit Q2
  • M&A activity has continued to rebound despite pandemic-related headwinds, with deal volume expected to return to 2019 levels in the 2H 2020, a promising picture after the 1H 2020 had deal volume come in at $404 billion, 68.9% lower than the year prior
    • Overall, Q3 2020 deal volume totaled $509 billion, a 37.9% increase versus Q3 2019, which totaled $369 billion
    • Sponsors have been very aggressive in recent months, with an ~8x boom of deal volume that reached $179 billion in Q3 2020 versus $22 billion the prior quarter
      • These trends are indicative of many businesses returning to near-normalized levels and sellers’ willingness to evaluate transactions, as buyer aggression grows and many anticipate potential tax changes to occur in early Q1 2021

Debt Capital Markets

  • The leveraged loan market continues to improve as pricing grinds tighter for repeat issuers with higher credit rating profiles, as 19 of 29 deals flexed in September
    • The average break price for U.S. leveraged loans that allocated in September rose 23 bps to 99.60% of par, from 99.37% in August
    • Middle market leveraged loan activity is starting to clear for several sponsor-to-sponsor deals, with additional add-on acquisitions emerging, while flexes and terms remain issuer specific
    • Dividend transactions also continue to clear the market, signaling strengthening conditions
  • CLOs have seen tighter spreads on AAAs, with those spreads recovering about 90% versus pre-COVID levels, in addition to well-known money managers pricing deals at aggressive levels
  • The high yield bond market set a September record for issuance volume, while Q3 2020 came in second for top ten quarterly issuance volumes
    • October is experiencing significant new issue volume with 24 deals already pricing for $14.0 billion
      • Two additional deals for Ports America and Ligado Networks are slated to price, bringing MTD new issue volume to $14.5 billion
  • The high yield asset class recouped approximately $5.8 billion of inflows over the past two weeks, which follows $7.8 billion of outflows the preceding two weeks
    • High yield bond yields and spreads have rallied recently, sitting at 5.86% / 556 bps versus 6.59% / 628 bps in late September
  • The investment grade fixed income market has seen many companies in “blackout” mode, with issuance being light as of late
    • Activity has been lighter than expected because some of the bank names that usually hit the market around this time have been absent
  • Volatility in the equity markets has not spilled over into the investment grade bond market, as investors are still signaling strong demand given the continued inflows
    • Issuance is 69.7% ahead of last year at $1.6 trillion, with domestic industrial issuance 122% ahead of last year

Equity Capital Markets

  • With $379 billion raised in the first nine months, 2020 has already broken the record for the highest full-year U.S.-listed equity capital markets volume, beating the previous record of $351 billion in the 2000s during the Dot.com era
    • Both IPOs and convertibles helped boost the volume this year, with SPAC IPOs contributing 45% of activity (118 out of 259 deals)
      • For the first nine months of 2020, U.S. SPAC IPOs stood at $44 billion, surpassing previous full year volumes dating back to 2010
  • Equity issuance is expected to slow down heading into the election and then pick back up beginning the week of November 9th post-election with several IPOs looking to launch virtual roadshows

Sources: CNBC, WSJ, KeyBanc Capital Markets

KeyBanc Capital Markets is a trade name under which corporate and investment banking products and services of KeyCorp® and its subsidiaries, KeyBanc Capital Markets Inc., Member FINRA/SIPC, and KeyBank National Association (“KeyBank N.A.”), are marketed. Securities products and services are offered by KeyBanc Capital Markets Inc. and its licensed securities representatives, who may also be employees of KeyBank N.A. Banking products and services are offered by KeyBank N.A. This report was not issued by our research department. The information contained in this report has been obtained from sources deemed to be reliable but is not represented to be complete and it should not be relied upon as such. This report does not purport to be a complete analysis of any security, issuer, or industry and is not an offer or a solicitation of an offer to buy or sell any securities. This report is prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual person or entity