Industrial Weekly Market Round-Up
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
- October is experiencing significant new issue volume with 24 deals already pricing for $14.0 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
- Both IPOs and convertibles helped boost the volume this year, with SPAC IPOs contributing 45% of activity (118 out of 259 deals)
- 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