Stable Backdrop Prompts Issuers To Rush US Bond Market, Again
06 December 2011 - 10:11PM
Dow Jones News
Corporate issuers continued to stuff the U.S. bond market with
new debt Tuesday, and while just three investment-grade issuers
were involved, two of the deals were at least $3 billion
apiece.
"Just get in while the market is open--there are so many
uncertainties going into the New Year," said one syndicate source
in New York, characterizing issuer sentiment. "Europe seems to be
on the mend one day and it's fanfare but everyone is afraid the
wind is going to be taken out of the sails--it could happen any day
you wake up."
The three issues to hit the market total nearly $7 billion, a
better-than-expected follow-up to the $9.65 billion issued Monday.
According to data provider Dealogic, Monday's issuance was the
largest since Nov. 14.
Pricing guidance on Gilead Sciences Inc.'s (GILD) weighty
four-part, $3.7 billion issue indicates the deal will be sold at a
spread to Treasurys ranging from 205 basis points for three-year
paper and 260 basis points for the 30-year bonds. The issue
includes three-, five, 10- and 30-year debt.
Hewlett-Packard Co. (HPQ), despite receiving downgrades from two
rating agencies last week, is marketing $3 billion of bonds in a
three-part deal. The issue has been structured with $650 million of
three-year notes offering a spread of 225 basis points over
Treasurys, $850 million of five-year notes with a spread of 240
basis points, and $1.5 billion of 10-year notes with a spread of
260 basis points.
Underwriters are pricing the deals with hefty concessions to
entice investors to participate. The 10-year H-P bonds, for
instance, are giving investors 50 basis points more than the
company's outstanding 10-year bonds issued in May, according to
MarketAxess.
The outstanding H-P bonds have subsequently weakened by 34 basis
points to a spread of 249 basis points.
Despite the concessions, the low-coupon environment is still
giving issuers a good deal, the syndicate source said.
"What we're telling our clients on the issuance side is: pay no
attention to the spread and look at the coupons you're achieving,"
he said. "Even though spreads are wide, you can actually tap the
market and sell a sizeable issue."
He called the front-end of the yield curve the sweet spot for
investors and noted few buyers are willing to extend out to the
30-year range. The Gilead bonds may be an exception given how
little debt the company has outstanding, he said.
Among smaller deals, USAA Capital Corp. sold $250 million of
2.25% coupon, five-year bonds price to yield 2.288%, according to a
final term sheet obtained by Dow Jones. The pricing reflects a 135
basis point spread over Treasurys, as indicated by earlier pricing
guidance.
MarketAxess reported more than $11.3 billion of secondary market
trading as of 4:30 p.m. EST, compared to a monthly average of $9.98
billion in November. At the same time, Markit's benchmark index of
the U.S. corporate-bond market, the CDX North America
Investment-Grade Index, advanced 1.4 points, or 1.1%.
-By Patrick McGee, Dow Jones Newswires; 212-416-2382;
patrick.mcgee@dowjones.com