The human toll and spread of COVID-19 has disrupted several industries, commodities and financial sectors, which has driven North American securities into disarray for the better part of March. While the stock markets tell a part of the story, how are equity and debt issuers reacting to this market shock in terms of issuing new securities?
As a capital markets utility with a window into pre-trade activity, CUSIP Global Services has been tracking the issuance of new securities identifiers closely over the past month to help gauge the impact of COVID-19 on the broader markets. Our post highlights recent issuance levels in the corporate and municipal segments, as well as resurgent asset classes and a few observations based on broader market news.
Corporate Equity & Debt
Overall corporate issuance – especially for debt – remains steady and close to pre-coronavirus levels. This includes large corporate debt, both public and private offerings. Based on cumulative weekly issuance reports from March and February 2020, overall corporate requests increased by 2.5% in March vs. February. A 14% increase in debt issuance and a hearty bump in bank certificate of deposit (CD) requests made up for lower equity issuance. Requests for CLO deals have dipped notably.
After soaring higher in mid-March, bank CD volume has leveled off over the last two weeks as investors likely flocked to safe havens during the first week of COVID-19’s impact. Still, bank CDs jumped by 30% month over month while equity requests were down 24.6%.
Municipal issuance was much lower in March as the primary markets essentially shut down. There are some encouraging signs that muni issuance could pick up as the muni market starts to stabilize with the assistance of Fed stimulus facilities.
Recently, municipal CUSIP requestors have returned with restructured preliminary offerings, including new dated dates for negotiated deals and changes in sale dates for competitive offerings. This could be a sign that postponed offerings are still on the calendar and may come to market to provide needed supply for investors and liquidity to issuers. Some deals have also been changed from public to private offerings in order to more quickly come to market. Municipal request volume for deals from underwriters on the CGS platform was down 49% in March vs. February.
Additional Market Metrics & Observations
- The CUSIP team is tracking any Federal Reserve or government stimulus programs that may increase issuance, such as TALF to support ABS offerings, which is being reinstated from the 2007-2008 financial crisis.
- Blue-chip companies have frequently come to the capital markets with large syndicated debt offerings to meet liquidity needs.
- Since the municipal weekly rate has soared in the past few weeks, our team continues to assist municipal participants with CUSIP requests for ‘Bank Bonds’ that may be issued for failed or anticipated failed remarketings of variable rate demand bonds.
- Most of these new bank bonds involve municipal securities, but requests for corporate bank bonds have also been submitted. We first started seeing bank bonds during the financial crisis of 2007-2008. Recent weekly rates for this asset class are notably higher despite lower overall muni rates.
- On March 30, we received the first CUSIP request for an IPO since the start of the current pandemic-induced market volatility.
- Municipal and corporate offering documents now feature language in the ‘Risk Factors‘ section about the COVID-19 pandemic and its impact on economic and financial performance.
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