Only in a few instances have investors extracted concessions from borrowers. Banks that financed the buyout of NSO Group -- an Israeli spyware company accused of selling software to governments and agencies linked to human rights abuses -- were forced to offer the debt at a steep discount to get it off their books, while Carlyle-backed ION Group this month dropped a planned $250 million dividend from a $2.2 billion leveraged loan sale, before ultimately opting to withdraw the entire debt deal.
Late-cycle behavior emerged in the bond market when state oil giant Saudi Aramco borrowed $12 billion in an unprecedented sale, staging a massive comeback from a year ago when Wall Street shunned the Kingdom in the aftermath of the assassination of journalist Jamal Khashoggi. But the bonds faltered in early trading, calling into question banks’ claims that investors had put in an astounding $100 billion worth of orders to buy the securities.
In equities, bankers entered 2019 itching to unclog a massive pipeline of IPO hopefuls. Fresh off the worst fourth quarter of the bull market, prospects seemed grim -- until the turnaround came. As of this week, 89 initial offerings raised $27.2 billion in the U.S., the fastest start since 2014. While the vast majority have done well in a soaring market-- Beyond Meat Inc., Zoom Video Communications Inc. and Pinterest Inc., to name a few -- Uber and Lyft evoke nightmares of other IPO flops, like Snap Inc. and Blue Apron Holdings Inc.
In more modest districts of the new listing market, there’s been hints of exuberance. The government shutdown that ended in late January created a backlog of filings for regulators. Banks turned to unusual tactics to keep the deal spigot flowing. Without a regulator around to review filings, these IPOs skipped the ordinary process of price discovery and instead took the risky step of disclosing a fixed IPO price 20 days before the stock began trading.
Seven companies set terms for IPOs while regulator offices were shuttered due to the federal government closure. A majority of them fell below their listing prices shortly thereafter. Included in this group is New Fortress Energy LLC, whose shares are trading well below the fixed IPO price used to push the deal through. Another IPO to launch during the shutdown, Guardion Health Sciences Inc., is now trading more than 60% lower than its fixed offering price.
Despite the best efforts of underwriters, not everything went through. The largest IPO attempted in the wake of the shutdown, Virgin Trains USA LLC, was withdrawn the same day it was expected to debut. Bankers spent nearly two weeks asking investors to value the firm as high as $3.15 billion before pulling the sale amid a pricing revolt from the buy side.
“People see it like this: it’s been great until now, but the window is going to shut, the door is going to close, should we do something now because the next few years are a question mark?” said Front, the chief investment officer. “Wall Street gets a lot of money between now and then and they’ll be able to put medals on their chest and say ‘Look how we did’ until they didn’t anymore.”
This article was provided by Bloomberg News.