Baker Hughes, Rowan, Caterpillar sell bonds; low coupon hunt continues; spreads remain firm

By Andrea Heisinger and Cristal Cody

New York, Aug. 19 - Baker Hughes Inc., Rowan Cos., Inc. and Caterpillar Financial Services Corp. priced bonds on Thursday as issuance was again lackluster.

There wasn't much expected for new deals, and one source remarked that it was likely a coincidence that two oil-related issuers tapped the new issue market on the same day.

Baker Hughes was the first to price with an upsized $1.5 billion issue of 30-year bonds. They priced at the tight end of talk and will be used partly to repay debt associated with a merger.

Rowan went out with its seven-year notes early in the day but priced them after the Baker Hughes sale. The size went out at $350 million but was then upsized slightly to $400 million due to demand, a source said. The bonds priced at the tight end of talk.

The Caterpillar deal was $200 million of floating-rate notes due 2012.

Although corporate bonds were "down a touch" in trading, the new notes from Baker Hughes and Rowan firmed in the secondary market, according to sources.

The Markit CDX Series 14 North American investment-grade index eased 3 basis points to a spread of 109 bps, according to Markit Group Ltd.

Secondary spreads "remained fairly firm," a trader said Thursday. "There's some relief for bonds - spreads aren't gaining in or blowing out, they're trading within range."

Overall investment-grade Trace volume rose 10% to more than $13 billion, according to a market source.

Treasuries moved up on Thursday and sent yields down on the latest round of weak economic data and the second purchase of government debt from the Federal Reserve Bank of New York.

"This morning when the Philly Fed numbers came out, the market shot up and never turned back," a trader said. "The 30-year was up a full 2 points earlier in the day."

The yield on the 30-year bond fell 8 bps to 3.65%.

The yield on the 10-year note dropped 5 bps to 2.58%.

Rowan deal increased

Rowan priced an upsized $400 million of 5% seven-year senior unsecured notes (Baa3/BBB-) by mid-afternoon at a spread of 310 bps over Treasuries, an informed source said.

The notes were sold at the tight end of guidance in the 315 bps area, with a margin of plus or minus 5 bps. The size was increased from a planned $350 million.

There was a "pretty hefty book" of $1.75 billion, a source close to the trade said, with about 80 line items on the books.

The company has done only one other large trade: $500 million in 10-year notes on July 15, 2009. Those priced at a much-higher spread of 437.5 bps despite having a shorter maturity, and the coupon was considerably higher at 7.875%.

Citigroup Global Markets Inc., RBC Capital Markets Corp. and Wells Fargo Securities LLC ran the books.

Proceeds are going to general corporate purposes, including the potential repayment of the $350 million in debt of Skeie Drilling & Production ASA.

In the secondary market, the notes firmed to 302 bps bid, 299 bps offered, a source said.

The contract drilling services company is based in Houston.

Corporates retake market

After a day where several foreign financials sold bonds, there was a resurgence of non-financial sales from U.S.-based corporates on Thursday.

Two of the day's deals were upsized on demand, including the Baker Hughes deal, which essentially tripled in size from an initially announced minimum of $500 million.

Companies are still tapping the market looking for low borrowing rates.

"There's still a dogfight on for coupons right now," a syndicate source said. "It's like a competition of who can get the lowest coupon."

The frontrunners so far have been Johnson & Johnson, which priced its recent two-tranche deal of 10-year and 30-year notes at record-low rates of 2.95% and 4.5%, respectively. Before that, International Business Machines Inc. had priced a deal of three-year notes at a record low coupon of 1%.

Baker Hughes upsizes

Oilfield services company Baker Hughes priced an upsized $1.5 billion issue of 5.125% 30-year senior unsecured notes early in the afternoon at Treasuries plus 150 bps, a market source away from the sale said.

The notes (A2/A) were priced at the tight end of talk in the 155 bps area, and the size was increased from a planned minimum $500 million benchmark, which was later upsized to $1 billion.

The active bookrunners were Barclays Capital Inc. and J.P. Morgan Securities Inc.

Proceeds are being used to repay at maturity or redemption $250 million in outstanding 5.75% notes due June 1, 2011 assumed by subsidiaries and guaranteed by Baker Hughes in connection with the merger with BJ Services Co. They will also be used to pay back $532 million in commercial paper and for general corporate purposes.

The notes were seen trading in the secondary market up around 101, a source said.

Another trader saw the notes tighten to a spread of 142 bps bid, 141 bps offered over Treasuries.

The issuer is based in Houston.

Caterpillar sells floaters

Caterpillar Financial Services sold $200 million in floating-rate medium-term notes due 2012 at par to yield Libor plus 23 bps, according to an FWP filing with the Securities and Exchange Commission.

The notes (A2/A/A) were priced via bookrunner Citigroup.

The financing and leasing arm of heavy equipment maker Caterpillar is based in Nashville.

Bank, brokerage CDS prices rise

A trader who follows the credit default swaps market said that the cost of protecting holders of bonds issued by major banks such as Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. against a possible event of default was 5 bps to 13 bps higher.

The CDS prices for paper of major investment banking companies such as Goldman Sachs Group, Inc. and Morgan Stanley rose 5 bps to 6 bps.

Paul Deckelman contributed to this report

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