(Bloomberg) -- Wall Street syndicate desks are expecting around $20 billion of investment-grade bond supply next week, according to an informal survey of debt underwriters.
That figure would be enough to surpass dealers’ September issuance estimates of around $140 billion. Sales volume wavered after a record-setting week early in the month. This week saw two different days with no issuance, as the China Evergrande Group debt crisis and FOMC meeting led to uncertain conditions for offerings on Monday and Wednesday.
The companies that have come forward are finding the market a little bit tougher than it was just a month ago. Thursday’s seven issuers saw their order books 2.5 times covered on average, less than the 3.1 times average for the year. Even so, with recent broad market turbulence it could be worse.
“In light of recent macro developments, we think that the overall environment remains supportive for credit,” Barclays Plc strategists led by Bradley Rogoff wrote in a report Friday. “But with index spreads in investment grade and high yield still close to multi-year tights, upside may be limited, and we expect spreads to drift modestly wider into year-end.”
That sentiment was echoed by JPMorgan Chase & Co. strategists on Thursday, who said that short-term credit hedges may be appropriate given greater downside than upside potential from the Evergrande situation and questions about the U.S. debt ceiling.
Read More: JPMorgan Suggests Short-Term Credit Hedges as Risks Grow
Junk-bond investors are awaiting the launch of $4 billion in unsecured notes and $3.8 billion in secured obligations by Medline Industries Inc. to help fund its leveraged buyout by Blackstone Inc., Carlyle Group and Hellman & Friedman.
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Medline is also selling a $6 billion leveraged loan, the largest funding a buyout since 2018, plus a $1 billion-equivalent euro-denominated loan. Commitments are due Sept. 30.
Ahern Rentals Inc., a company that rents out tools and heavy machinery, concluded an investor call Thursday and is marketing $550 million of junk bonds through next week.
Three leveraged loan meetings are scheduled going into the week, including one for a $415 million loan helping to fund the leveraged buyout of Trace3, an IT services management company. Meetings will also be held for All My Sons’s $405 million offering for the company’s recapitalization and USNR’s $315 million loan. And next week 15 deals totaling $18.5 billion are due to be priced, including Medline.
Bank of America Corp. sees a “more clouded” macro outlook weighing on high yield spreads going forward.
“We now think the window for further spread compression has largely closed,” strategists led by Oleg Melentyev wrote Friday, adjusting the bank’s forecast for high-yield spreads wider by 50 basis points.
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