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Credit Insights

Following August Slowdown, Corporate Bond Issuance Springs Back to Life

Last week was the busiest of the year for new corporate bond issuance.

Following the typical seasonal slowdown in August, the new issue market sprang back to life following the Labor Day holiday. According to Bloomberg, this was the busiest week of the year for new corporate bond issuance, with over $53 billion worth of bonds priced. The largest transaction was brought by Cigna Corp (non-NRSRO rating: BBB/UR-) to help fund its pending acquisition of Express Scripts Holding Co (A-/UR-). Cigna issued $20 billion worth of notes across 10 tranches with maturities ranging from 3 to 30 years. This issuance came just a day after reports surfaced that the Cigna-Express Scripts merger and the pending merger between CVS Health Corp (BBB+/UR-) and Aetna Inc (not rated) will probably be allowed by antitrust regulators. Cigna has said it anticipates initially owing $41 billion in debt after the merger is completed. Therefore, pro forma leverage looks set to rise to the mid-3s if the merger closes as expected at the end of 2018, which is much higher than Express Scripts' stand-alone leverage around 2 times. However, Cigna management appears committed to deleveraging to maintain its investment-grade status, which is likely to inform our credit view of the combined entity.

Among other issuers we rate, Duke Realty Corporation (BBB+, stable) completed a $350 million, 10-year senior unsecured notes offering. The issuer is Duke Realty LP. Net proceeds are expected to be used for retiring in advance $224 million of secured debt maturing in March 2019, funding development, repaying borrowing under its revolver, and general corporate purposes. Duke Realty's BBB+ rating and stable outlook are supported by solid Business Risk and Cash Flow Cushion pillars, which are somewhat curbed by a weaker Solvency Score. Contributing to Business Risk is Duke's high-quality, largely unencumbered portfolio of bulk warehouse facilities, which is uniquely positioned to capture robust e-commerce demand. At an average age of 11 years, Duke's portfolio is the youngest among its peers; it is also among the largest in terms of average facility size, which results in lower capital expenditures and tends to draw higher-credit tenants with lower turnover. Larger average building size can also drive higher rent levels upon renewal. We believe the credit is further supported by some of the lowest leverage metrics among its industrial real estate investment trust peers, in particular debt/EBITDA and secured leverage.