PepsiCo, Bottling Group do $3.3 billion, CSX prices small deal; secondary competes with new issues

By Andrea Heisinger

New York, Oct. 21 - Two Pepsi units, PepsiCo, Inc. and Bottling Group, LLC, priced large bond issues Tuesday that along with a smaller issue from CSX Transportation Inc. reenergized the investment-grade bond market.

The levels the issues priced at also left syndicate sources wondering whether it would encourage or discourage more companies from pricing in the next couple of days.

The two Pepsi deals affected the secondary market with their high levels that forced traders to reprice notes.

PepsiCo does $2 billion

PepsiCo priced $2 billion Tuesday but did so at previously unheard of levels.

The 7.9% 10-year senior notes priced at 99.758 to yield 7.935%, or Treasuries plus 420 basis points.

Both this deal and the one from the company's bottling division carried new issue concessions in the neighborhood of 150 bps, a source said.

"This was the widest print we've seen," he added.

Active bookrunners were Merrill Lynch and Morgan Stanley & Co. Inc., with UBS Investment Bank and the Williams Capital Group, LP as passive books.

Bottling prices $1.3 billion

Pepsi's Bottling Group priced $1.3 billion in 6.95% senior notes due 2014 at 99.793 to yield 6.999%, or Treasuries plus 435 bps.

Morgan Stanley and Merrill Lynch were active bookrunners, with Deutsche Bank Securities, HSBC Securities and J.P. Morgan Securities as passive bookrunners.

CSX upsizes deal

CSX Transportation priced an upsized $350.54 million of 8.375% secured equipment notes due 2014 at par to yield 8.375%, or Treasuries plus 575.2 bps.

The size was increased from an announced $250.44 million.

Price guidance for the issue was in the 8.5% area, a source said.

"There was a lot of interest," he said. "The book filled up fast, and I think it ended up two times oversubscribed."

Another source said this issue was "in the background," overshadowed by Pepsi's domination of the market.

Bookrunners for CSX were Citigroup Global Markets, Credit Suisse Securities and J.P. Morgan Securities.

Pepsi deals spark hope

The big news for Tuesday was the two deals from Pepsi, both because of their size and pricing levels, sources said.

"It's kind of a household name," a source said. "It's kind of like IBM, where it sets the tone."

He was referring to the $3.9 billion three-tranche deal from IBM that priced Oct. 9 following the company's third-quarter earnings announcement.

The Pepsi issues also come on the heels of its third-quarter financials released earlier this month, which showed a decline in net income to $1.58 billion, or 99 cents a share, from net income of $1.74 billion, or $1.06 per share, in the year-ago period as revenue grew to $11.2 billion year over year. The company also reported plans to cut 3,300 jobs.

"It's interesting because it could either persuade a lot of people to come into the market because of the size, or it could scare a lot of people away because of the price discovery," a source said.

It will "take everyone a little bit to digest," he said, adding that it's unlikely a glut of issuers will jump into the market Wednesday.

Another source agreed, saying that Wednesday is "up in the air," depending on market conditions at the open and whether any other bad news makes the headlines.

"This was good news, but when you have good companies pricing at these levels and paying record [new issue] concessions, you never know," he said.

PepsiCo in sharply

The new 10-year notes from PepsiCo were seen trading at 390 bps bid, 350 bps offered after pricing Tuesday at Treasuries plus 420 bps, a trader said.

The issue of notes due 2014 from a division of Pepsi, Bottling Group LLC, was not seen trading.

3M wider despite earnings

Outstanding 3M Co. bonds were seen wider Tuesday afternoon despite the company announcing positive earnings earlier in the day.

The company had third-quarter revenue of $6.6 billion, which was a 6.2% increase from 2007. This was thanks to overseas growth as well as double-digit sales growth in its three largest businesses, according to a press release.

3M's notes due 2013 were seen trading at 170 bps bid, 165 bps offered, which was about 5 bps wider than Monday's level of 160 bps, a trader said.

Caterpillar notes widen

Caterpillar, Inc. notes due 2013 were seen about 20 bps wider on Tuesday after the company reported an increase in revenue for the third quarter over last year. The company's notes due 2013 were at 425 bps bid, 380 bps offered, a trader said.

The equipment company reported revenue of $774 million, which was an increase of 2%.

Banks, brokers mixed

Bank names were seen anywhere from 5 bps cheaper to 5 bps richer, a trader said Tuesday.

Brokers were more varied, showing unchanged levels to 45 bps narrower.

Secondary jarred by Pepsi

The secondary market took a hit following the pricing of two new issues from Pepsi Tuesday due to the levels at which the new deals were priced.

"We're just repricing everything in the secondary," a source said. "This Pepsi deal is screwing with everything."

Pricing spreads have risen to record levels in the past two months, so much so that issues are done at a coupon.

"To get deals done, they're pricing them so cheap that it's blowing out in the secondary," a source said.

Most issues price high, but tighten in 50 bps or more an hour afterward.

"There's no reason to buy anything in the secondary when you can get the new issues so cheap," the source said. "It's ridiculous."

Citi, Pepsi among big movers

Among the day's big movers was Citigroup Inc., whose 5% notes due 2014 were seen tightening more than 240 bps.

Also on the list were PepsiCo's 5% notes due 2018, which were seen coming in more than 125 bps after pricing new paper Tuesday.

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