Private Market Runs Hot…For Now, at Least

March 5, 2008

There are currently no less than eight placements circulating in the market, some of which launched last week, others that launched earlier and are still in the market. That represents a significant increase in activity compared to most of the past two months. But as volatile as the overall market has been this year, no one knows how long this level of activity will continue.

Briefly, as of today…

*JPMorgan is taking bids on its $150 million deal for Australia-based construction company Boral Ltd. today.

*Wells Fargo and CoBank’s $220 million deal for The Andersons was said to have priced.

*Merrill just priced a $150 million deal for Textron Financial.

Things seem to be running hot and cold in the private market this year, and last week was a pretty hot one. After this very blog announced a “Mid-Winter Thaw,” issuance went radio silent for a week or two, then last week the market came alive again. But it’s hard to tell exactly why this happened, and again it depends on whom you ask.

Last week the public market was active, with investment-grade names like Archer Daniels Midland, Biogen IDEC, Avon Products, PG&E, McDonalds and Honeywell all tapping the market. That may have helped provide some much needed pricing clarity for the private market. Spreads also managed to tighten in a tiny bit, on the order 10 to 15 basis points across the credit spectrum. It seems this provided a window of opportunity for agents to bring to market some of the private issuers who have been waiting to do deals.

It will be interesting to see whether last week’s activity was just another blip or if it will continue. On Friday Feb. 29 another shovelful of bad news was unleashed on the market, causing the Dow to drop more than 300 points. Composite yields on public 10-year single-A paper were fluctuating around 5.85% as of the time of this posting, but have crept up roughly 50 basis points in a month, according to data from ValuBond. The composite 10-year high yield spread sprung to 615 basis points over Treasurys in the past few days, its highest level since 2003, according to KDP Advisor. Meanwhile, yields on the 10-year Treasury are up in about 20 basis points over the past week, and on the five-year its even worse, on the order of 50 basis points tighter in one week. 

The public market also seems to be fairly active again this week, with names like Cigna, Mattel, Praxair, Pitney Bowes, Waste Management, and Kellogg all hitting the board early.

You’d have to be more clairvoyant than I to decipher all this, and no one I’ve talked to this week wants to make any firm predictions. Most likely, issuance in the private market will continue like it has been going; generally slow and choppy, but punctuated by periods of high activity whenever spreads flatten-out or tighten to any appreciable degree.