US joins global ECM shutdown
The US equity capital market is shuttered, but not entirely
closed. This is typically an active period, but there has not been an
IPO in the US since Facebook’s controversial US$16bn offering of May 17 –
the longest drought since the start of 2012.
The inactivity cannot be blamed on investor backlash from Facebook, although the nearly US$5bn of investor losses on the social media company’s offering has certainly dampened enthusiasm. Even before Facebook there were signs that investors were growing wary of IPOs.
High-profile offerings for Oaktree Capital in April and Carlyle Group in early May both proved difficult sales. A total of 14 companies either postponed or withdrew IPOs in May, a level not seen since August 2011 when 16 companies pulled their deals amid concerns in the eurozone and the US debt ceiling crisis.
The current mood is eerily similar to that of last summer, when second-half IPO volumes in the US plummeted to US$9.2bn after totalling US$23.7bn in the first half of the year. So far this year there has been US$28.3bn of IPO issuance, though that number is heavily skewed by Facebook.
“Comparing the current market conditions with last year discounts the severity of last summer’s uncertainties,” suggested Brian Reilly, head of US equity capital markets at Barclays. “Right now, looking at the next few months, there are a number of headline events that need to pass before the markets are likely to make a decisive move into positive territory.”
“It is very risky and a big commitment for an issuer to take two weeks away from their business to market an IPO,” said Mary Ann Deignan, head of Americas ECM at Bank of America Merrill Lynch. “There are 10 Wall Street ECM teams and zero [live] IPOs.”
However, bankers are convinced that there are three windows for potential issuance before the summer.
The first window opens between June 11 and the Greek elections on Sunday June 17; the second opportunity follows the Greek elections and runs until June 29 (ahead of the July 4 holiday, which falls on a Wednesday this year); and the third begins after Independence Day and continues until the middle of August. At least one deal is planned to soft-launch on June 18, utilising the eight full days of marketing to price on June 28.
Greece is not the only concern. The G20 Summit on June 18–19, the Fed FOMC meeting on June 19–20, and the US Supreme Court ruling on the constitutionality of the Patient Protection and Affordable Care Act (Obamacare) are all near-term events that could disrupt the financial markets.
But that time was not last Wednesday, June 6, when joint bookrunners Goldman Sachs, JP Morgan and Morgan Stanley had planned to launch marketing of the IPO. The non-farm payrolls report of June 1 and subsequent 2.5% sell-off in the secondary markets – down 10% from the highs of early May – provided reason for pause.
The main motivation for the IPO, and the reason it is likely to resurface in the near future, is to pay down a portion of Intelsat’s US$16.2bn debt load. Using all the primary proceeds to repay debt would leave leverage at an elevated seven times adjusted Ebitda over the trailing 12 months ended March 31.
A counter to investor concerns about leverage is the predictability and high levels of cashflow at Intelsat, the world’s largest satellite operator. The company had a contracted backlog – the amount of future revenue under existing customer contracts – of US$10.5bn at March 31, more than four times its US$2.6bn of revenue in the past year.
The inactivity cannot be blamed on investor backlash from Facebook, although the nearly US$5bn of investor losses on the social media company’s offering has certainly dampened enthusiasm. Even before Facebook there were signs that investors were growing wary of IPOs.
High-profile offerings for Oaktree Capital in April and Carlyle Group in early May both proved difficult sales. A total of 14 companies either postponed or withdrew IPOs in May, a level not seen since August 2011 when 16 companies pulled their deals amid concerns in the eurozone and the US debt ceiling crisis.
The current mood is eerily similar to that of last summer, when second-half IPO volumes in the US plummeted to US$9.2bn after totalling US$23.7bn in the first half of the year. So far this year there has been US$28.3bn of IPO issuance, though that number is heavily skewed by Facebook.
“Comparing the current market conditions with last year discounts the severity of last summer’s uncertainties,” suggested Brian Reilly, head of US equity capital markets at Barclays. “Right now, looking at the next few months, there are a number of headline events that need to pass before the markets are likely to make a decisive move into positive territory.”
“There are 10 Wall Street ECM teams and zero [live] IPOs”Volatility in the secondary market and the shock that just 69,000 jobs were created in the US during May have taken their toll, while the pending Greek elections have also kept issuers at bay. Online travel broker Kayak Software, satellite operator Intelsat and Globus Medical, a medical device manufacturer, all contemplated launching IPOs in late May or early June but elected to defer, according to various market sources.
“It is very risky and a big commitment for an issuer to take two weeks away from their business to market an IPO,” said Mary Ann Deignan, head of Americas ECM at Bank of America Merrill Lynch. “There are 10 Wall Street ECM teams and zero [live] IPOs.”
However, bankers are convinced that there are three windows for potential issuance before the summer.
The first window opens between June 11 and the Greek elections on Sunday June 17; the second opportunity follows the Greek elections and runs until June 29 (ahead of the July 4 holiday, which falls on a Wednesday this year); and the third begins after Independence Day and continues until the middle of August. At least one deal is planned to soft-launch on June 18, utilising the eight full days of marketing to price on June 28.
Greece is not the only concern. The G20 Summit on June 18–19, the Fed FOMC meeting on June 19–20, and the US Supreme Court ruling on the constitutionality of the Patient Protection and Affordable Care Act (Obamacare) are all near-term events that could disrupt the financial markets.
Satellite launch delayed
Intelsat had been anxious to punch through to the public markets, having lined up a strategic investor to take a large portion of the IPO that is expected to value the business at US$18bn.“It’s one thing to launch a US$1.75bn IPO. It’s another to launch a US$1.75bn IPO and say that US$1bn of it is spoken for”“It’s one thing to launch a US$1.75bn IPO,” said a source close to the situation. “It’s another to launch a US$1.75bn IPO and say that US$1bn of it is spoken for. This is a company that has to go at some point in time.”
But that time was not last Wednesday, June 6, when joint bookrunners Goldman Sachs, JP Morgan and Morgan Stanley had planned to launch marketing of the IPO. The non-farm payrolls report of June 1 and subsequent 2.5% sell-off in the secondary markets – down 10% from the highs of early May – provided reason for pause.
The main motivation for the IPO, and the reason it is likely to resurface in the near future, is to pay down a portion of Intelsat’s US$16.2bn debt load. Using all the primary proceeds to repay debt would leave leverage at an elevated seven times adjusted Ebitda over the trailing 12 months ended March 31.
A counter to investor concerns about leverage is the predictability and high levels of cashflow at Intelsat, the world’s largest satellite operator. The company had a contracted backlog – the amount of future revenue under existing customer contracts – of US$10.5bn at March 31, more than four times its US$2.6bn of revenue in the past year.
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