- Deals coming early impact market players.
- Earlier pricing, based on demand, may cut down on allocations.
- Advantage: buyers.
As supply remains on track for another record year — or at least come close — more deals have been accelerated, affecting some market participants' plans.
Heading into any given week, participants know the deals set to come to market, so they plan orders against credits, said Kim Olsan, senior fixed income portfolio manager at NewSquare Capital.
However, "if the deal is accelerated based on heavy demand, then you might get cut back on orders," she said. "In that case, you move on to look for replacements."
For some, accelerated deals don't cause major issues. "People are already in the market, so you're on top of these deals," said Sweta Singh, founding partner and portfolio manager at City Different Investments.
Furthermore, this is an election year, so market participants are already expecting deals to be accelerated ahead of the October/November period, she said.
"This is a dynamic that the market's pretty used to. The market's comfortable, and honestly, there cannot be enough supply," Singh said.
Accelerating deals does not cause undue strain on the underwriters, said Ron Banaszek, co-head of public finance and lead underwriter at Blaylock Van.
"As the book running manager, depending upon who that is and how many deals they may have on their plate for any given day, could change the workload for that day," he said
However, "collapsing" a deal into one day versus two days does not have a negative impact long-term, Banaszek.
More often than not, it's the underwriters recommending accelerating deals, he said.
Capitalizing on interest
Deals are accelerated most of the time because the issuer wants to capitalize on the strong interest from the premarketing scale, Olsan said.
"If market conditions present themselves and bankers feel like it looks like a good shot to replace the debt, they're going to try to bring it [earlier]," said Chad Farrington, co-head of municipal bond investment strategy at DWS.
When this happens, the final pricing typically includes some bumps, as early firm demand leads to more orders. In this case, it is the issuer's advantage, Olsan said.
Sometimes, the market may be better the next day, and if the team had waited, results could have been more favorable, Banaszek said.
Risk
The risk, though, is that market conditions could deteriorate, so someone needs to decide what to do, he said.
"When you have [market] volatility, you want to take advantage of a strong market, and I think that's what you're seeing, because tomorrow could be worse," Farrington said.
Less frequently, some deals are accelerated to get ahead of competing deals of similar sizes or credits slated to come to market later that week.
Getting attention
This is especially true during heavier weeks, where some deals, especially smaller ones, can get lost in the shuffle. By accelerating deals, the team can get them done before the flood of issuance starts to unwind.
In this instance, final pricing might be less consistent than preliminary pricing, and that's to the buyer's advantage, Olsan said.
Some dates for deals are baked in, like due diligence calls, the release of the preliminary offering statement, and when the premarketing or retail order period happens, Banaszek said.
There may be some flexibility within the week to "work around what the market is giving us," which is a good thing, he said.
"It's the issuer, the financial advisor, their municipal advisor and the bookrunning manager or co-bookrunning managers, all working together to get the best deal possible for the issuer," Banaszek said.
