Bond markets have rallied in recent weeks on improving inflation data and low unemployment. Investors are prioritizing big, liquid deals from well-known companies, which in part helped tech giants Apple and Meta raise more than $15 billion in debt this month.
This article first appeared in 10 Things on Wall Street, an Insider newsletter that brings you all the biggest stories dominating the financial industry – delivered to your inbox daily. register here. Download the Insider app here.
1. The US corporate bond market is enjoying the August sunshine with big trades. It’s a rare sight because Wall Streeters are more likely to be on a beach in the Hamptons or floating in the turquoise waters of the Mediterranean this time of year.
“The last two weeks have been the best window I’ve seen in months for companies looking to get a deal done,” a capital markets banker told me. “There is less volatility and inflation levels were below consensus.”
The draw of both transactions was its large size, at $1 billion, which is what investors are currently looking for in order to be able to trade or withdraw debt in the secondary markets. There is also an appetite for recognizable companies as bond buyers pursue the old adage of a ‘flight to quality’.
“Apple and Meta are big deals because they’re huge, liquid deals and household names,” the capital markets banker said.
Leveraged finance, one of the riskiest corners of capital markets, also showed signs of life. The price of high-yield bonds – also known as ‘junk bonds’ – has improved as investors bet the US Federal Reserve’s focus on lowering inflation will pay off . week, by 11.6% at the beginning of July, the FinancialTimes reported.
One investor said things in the leveraged finance market were almost “back to normal” and played down talk of a deep recession as long as unemployment levels remained low.
“The underlying consumer is still very healthy and I’m not really worried about the economy,” Michael Marzouk, managing director and portfolio manager at Pacific Asset Management, told me. “It’s feared that a bunch of new supplies will drive the markets down, but overall prices have come back quite strong.”
One of the most talked about leveraged finance deals is the roughly $15 billion debt financing supporting the takeover of Citrix Systems by private equity firms Vista Equity Partners and Elliott Investment Management.
Last week, Bloomberg reported that the banks marketing this debt have revamped the structure to include around $500 million equivalent of euro-denominated loans. Market volatility at the start of the year had prevented banks – Credit Suisse, Goldman Sachs and Bank of America – from syndicating Citrix debt to investors, but they are marketing the revised structure in a bid to remove debt from their own books.
“The Citrix deal won’t be for everyone, but I’m confident they’ll figure out how to make it happen,” Marzouk said of the banks’ efforts to sell the bonds and loans to investors after Labor Day.
To help with that, underwriters should offer Citrix debt at a steep discount in the low 90 cent range, Marzouk added.
In other news:
2. Wall Street banks are set to agree to pay up to $200 million each and admit their employees’ use of personal messaging apps violated regulatory requirements, the wall street journal reported. The development comes as many on Wall Street grow increasingly concerned about regulators’ efforts to monitor their Whatsapp messages.
3. US mortgage lenders are starting to fail, according to Bloomberg. The industry is seeing its first lenders fail after soaring rates, and the failures ahead could be the worst since the housing bubble burst some 15 years ago. Certainly, there is no systemic collapse coming because the big banks represent less than the company as a whole.
4. Credit Suisse’s largest shareholder has urged the firm to fix its investment bank or look for other options to settle its losses. David Herro, chief investment officer of Harris Associates, told Bloomberg that if the unit could find a way to generate sustainable returns, it would keep shareholders on board. Bloomberg also reported that Credit Suisse investment bankers anticipate brutal budget cuts following the last emergency restructuring.
5. Madison Square Garden Entertainment is exploring a spinoff from its live entertainment business. A new corporation would control the iconic New York arena and also control the garden’s licensing agreements with the New York Knicks and New York Rangers.
6. A 20-year-old college student made about $110 million in profit selling shares of Bed Bath & Beyond last week. Jake Freeman, the head of Freeman Capital Management, has capitalized on the retailer becoming the latest meme stock to multiply in value in a matter of days.
7. The founder of crypto company Animoca Brands has described big tech companies like Meta and Microsoft as “digital dictatorships.” Yat Siu said his goal – alongside the wider Web3 universe – is to take the power out of big tech and put the power of ownership back in the user.
8. Elon Musk’s tweet about buying Manchester United wasn’t so funny to the English football club’s weary fans, according to this account from Reuters. In Musk-Twitter news, the billionaire said Twitter was chasing him over every conversation he had about the potential $44 billion takeover of social media platform Bloomberg. reported. Twitter also wants to see Musk’s text messages as both sides prepare for a trial on October 17.
9. Wire, an encrypted messaging startup, just raised $24 million. Take a look at the pitch deck the Berlin-based company used to raise capital from Cipio Partners and Iconical. Wire deploys end-to-end encryption so users can securely videoconference, share files and send messages. The fundraiser comes at a time when many on Wall Street are concerned about regulators’ efforts to monitor their messaging through unauthorized apps.
10. Reilly Meehan is a 31-year-old private chef in the Hamptons. He’s constantly on call, but the pay and lifestyle are worth it. Meehan said he’s happy to have left the traditional culinary route – here’s what his job looks like.
- GI Alliance, a gastroenterology practice, has been acquired by its physician owners. Doctors, who own about 70% of the company, bought the minority stake from Waud Capital Partners. The transaction values GI Alliance at $2.2 billion and is led by Apollo’s Hybrid Value fund.
- KKR-backed software company Level Access has merged with eSSENTIAL Accessibility, an accessibility-as-a-service platform that provides digital access and compliance for businesses. JMI Equity is another third-party investor in the merger.