Caterpillar issues after Q2 earnings, Goldman, Scotiabank tap primary; Morgan Stanley narrows

By Andrea Heisinger and Cristal Cody

New York, July 26 - Caterpillar Financial Services Corp. entered the high-grade debt market on Tuesday after its parent company announcing second-quarter earnings the day before.

The financing arm of Caterpillar priced $750 million of five-year notes at the low end of guidance. The sale was upsized from $500 million.

Caterpillar announced positive second-quarter earnings on Monday that missed analyst expectations. The company reported earnings per share of $1.72, up 58% from a year ago at $1.09.

The company was joined in the primary market by Goldman Sachs Group, Inc., which priced $500 million of two-year floating-rate notes coming on the tail of a large deal the previous week.

There was also a sale of covered bonds by the Bank of Nova Scotia, a source said. Those five-year bonds were priced at 69 bps over Treasuries, but no further terms were available at press time.

There was little progress on debt ceiling talks, but the market seemed to have shrugged off any effects already Monday, instead focusing on earnings.

"I think there were some encouraging [earnings announcements] today, so that maybe helped," a syndicate source said late in the day.

"CAT was right off the bat, so I think they knew after Q2 yesterday that they wanted to go."

The Goldman Sachs sale was "a little surprising," the source said, adding that the company was likely issuing opportunistically "before things got worse."

Overall trading volume jumped 30% on Tuesday to about $13 billion.

Caterpillar Financials' new notes traded slightly tighter than issue price, but other new financial paper narrowed on the day, traders said.

Morgan Stanley's new 10-year notes firmed 10 basis points to 12 bps in trading on Tuesday. Goldman Sachs' 10-year notes sold the previous week also traded more than 10 bps tighter.

The Markit CDX Series 15 North American Investment Grade index improved 1 bp to a spread of 94 bps, according to Markit Group Ltd.

Treasuries rallied after good demand for the government's two-year note auction. The two-year note yield fell 2 bps to 0.38%. The 10-year note yield dropped 5 bps to 2.95%.

CAT Financial upsizes

Caterpillar Financial Services sold an upsized $750 million of 2.05% five-year medium-term notes, series G, (A2/A/A) to yield Treasuries plus 62 bps, said an informed source.

They were priced at the low end of guidance in the 65 bps area. The deal size was increased from $500 million.

Goldman Sachs & Co. and J.P. Morgan Securities LLC ran the books.

The company last priced five-year notes in a $450 million deal on March 23. That 2.65% paper priced at a similar spread of 65 bps over Treasuries.

Caterpillar Financials' new notes were seen moderately better to trading around issue price in the secondary market, according to traders.

The notes were seen at 59 bps offered and later at 62 bps bid, 58 bps offered.

The funding arm of heavy equipment maker Caterpillar is based in Nashville.

Goldman's floaters

Goldman Sachs priced $500 million of two-year floating-rate notes (A1/A/A+) at par to yield Libor plus 100 bps, said a source away from the deal.

Goldman Sachs & Co. was the bookrunner.

This deal comes less than a week after a $2.75 billion offering of 10-year notes priced on July 22.

The investment bank is based in New York.

Morgan Stanley narrows

Morgan Stanley's 5.5% 10-year notes (A2/A/A) traded another 10 bps to 12 bps tighter on Tuesday, traders said.

The notes were seen at 230 bps bid, 225 bps offered and going out at 228 bps bid, 226 bps offered.

Morgan Stanley sold $1.5 billion of 5.5% notes due 2021 on Thursday at 250 bps over Treasuries. The notes due 2021 traded on Monday at 240 bps bid, 230 bps offered.

The investment bank is based in New York.

Goldman 10-years tighten

Goldman Sachs' 5.25% 10-year notes also traded more than 10 bps tighter to 217 bps bid, 215 bps offered on Tuesday, according to a trader.

The company sold $2.75 billion of the 10-year notes (A1/A/A+) on Friday at a spread of 230 bps over Treasuries.

The investment bank is based in New York.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.