Energy Transfer Partners brings $2 billion of senior notes; Entergy, Macy's notes firm

By Sheri Kasprzak and Cristal Cody

New York, Jan. 10 - Investment-grade primary action was very active on Tuesday, led by a $2 billion offering of senior notes from Energy Transfer Partners LP.

Meanwhile, earnings news for aluminum producer Alcoa Inc. was mixed, said Jody Lurie, corporate credit analyst with Janney Montgomery Scott LLC.

Alcoa (Baa3/BBB-/BBB-) struggled with volatile commodity costs and macro headwinds that hurt profitability, said Lurie.

"Management announced a few days ago plans to close 12% of its global smelting capacity by the first half of 2012 due to a product surplus leading to less competitive pricing," Lurie stated.

"Though profitability lagged, Alcoa achieved its goal of being free cash-flow positive at year-end, as it curtailed additional capex plans, spending only 86% of its targeted amount."

Lurie noted that leverage increased from last quarter because of reduced profitability.

Unfunded pension remain a major problem for the business.

"With $1.9 billion in cash on hand, Alcoa commented that it enters 2012 managing for cash, and we view the company as still focused on credit quality despite the need to bolster profitability in this difficult environment," said Lurie.

Bonds traded better over the day. The Markit CDX Series 17 North American investment-grade index firmed 1 basis point to a spread of 118 bps.

Entergy Corp.'s new notes traded more than 20 bps better in the secondary market.

The 4.7% notes due 2017, which priced at 387.5 bps over Treasuries, tightened to 365 bps bid, a trader said.

Retailer Macy, Inc.'s new 3.875% notes due 2022 traded 8 bps better at 192 bps bid, 186 bps offered, a trader said.

"Nothing yet" on the 30-year bonds in trading, the source said.

Investment-grade bank and brokerage credit default swaps costs declined on Tuesday, indicating better investor confidence in the financials sector.

Bank paper CDS costs traded down 3 bps to 15 bps, a trader said.

Brokerage company paper CDS costs were down 10 bps to 20 bps.

Overall trading volume jumped to nearly $15 billion on Tuesday from about $11 billion on Monday.

Treasuries were little changed going out. The benchmark 10-year Treasury note yield rose 1 bp to 1.96%. The 30-year bond yield was flat at 3.02%.

Energy Transfer brings notes

The Energy Transfer notes (Baa3/BBB-/BBB-) were offered through joint bookrunners J.P. Morgan Securities LLC, UBS Investment Bank, Credit Suisse (USA) LLC and Wells Fargo Securities LLC.

The offering included $1 billion of 5.2% notes due Feb. 1, 2022 and $1 billion of 6.5% notes due Feb. 1, 2042.

The 10-year notes were priced at a spread of Treasuries plus 325 basis points. They priced at 99.758 to yield 5.231%. The notes are callable at par on or after Nov. 1, 2021 and also feature a make-whole call at Treasuries plus 50 bps before Nov. 1, 2021.

The 30-year notes were priced at a spread of Treasuries plus 350 bps. The notes, which were priced at 99.642, yield 6.527%. The notes are callable on or after Aug. 1, 2041 and also have a make-whole call at Treasuries plus 50 bps before Aug. 1, 2041.

Proceeds will be used to fund the cash portion of the purchase of Citrus Acquisition, as well as for general partnership purposes.

In the event that the acquisition is not consummated on or before April 17, 2012, or if the merger is terminated at any time before that date, Energy Transfer Partners must redeem the notes at a termination price equal to 101% of the aggregate principal amount of the notes plus accrued interest to, but excluding, the redemption date.

France Telecom $900 million

In other news, France Telecom sold $900 million of 5.375% notes, said a term sheet.

The notes (A3/A-/) are due Jan. 13, 2042 and are priced at a spread of Treasuries plus 240 basis points. The notes were priced to yield 5.392% at 99.749.

BNP Paribas Securities Corp., HSBC Securities (USA) Inc., Merrill Lynch, Pierce, Fenner & Smith Inc. and Morgan Stanley & Co. LLC were the joint bookrunners for the offering.

The notes feature a make-whole call at Treasuries plus 40 bps.

Proceeds will be used for general corporate purposes.

Most of the bond issue will be swapped into euros at a rate of 4.88%, according to a statement released by the company Tuesday.

"The group has seized a window of opportunity in the dollar bond market to continue to extend the maturity of its debt while anticipating further its future redemptions and keeping diversifying its funding sources," said the statement.

Paul Deckelman contributed to this review

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