Kroger, Hillenbrand, LaFarge, Duke Energy Indiana sells bonds; new bond issues strengthen

By Andrea Heisinger and Cristal Cody

New York, July 6 - Kroger Co., Hillenbrand, Inc., LaFarge SA and Duke Energy Indiana, Inc. each sold bonds on Tuesday to signal a solid start for the investment-grade bond primary market in a short week.

At the rocky end of the previous week, sources said that issuers would only price their deals on Tuesday if the market looked good at the top of the day. Other issuers are expected to come to the market on Wednesday.

Duke Energy Corp. subsidiary Duke Energy Indiana sold $500 million in 10-year first mortgage bonds at the tight end of talk.

Grocery retailer Kroger priced an upsized $300 million of 30-year senior notes. The size was increased from $250 million, and the deal was well oversubscribed.

Meanwhile, French building materials company LaFarge priced an upsized $550 million in five-year notes.

And funeral home services company Hillenbrand priced $150 million of 10-year senior notes later in the afternoon. The size did not grow from what was initially announced, a source said.

The fact that some issuers came to the market after a long weekend cheered traders on some syndicate desks. Traders are hoping that July will be busier than the slow last couple of months.

New issues strengthen

In secondary trading, new high-grade debt from Kroger and Duke Energy Indiana was stronger, sources said.

Bank and financial paper was weaker on the day, according to sources.

Citigroup Inc.'s 8.5% notes due 2019 moved out to 271 basis points from 245 bps on Friday, while Morgan Stanley's debt also widened, a source said.

Morgan Stanley's 7.3% notes due 2019 moved out to 325 bps from 316 bps. Also, the New York-based financial holding company's 5.625% notes due 2019 were wider at 316 bps on Tuesday from 304 bps over Treasuries on Friday.

Overall investment-grade Trace volume was drastically low at less than $4 billion on Friday, as traders and investors left for the three-day holiday weekend, a source said. Volume on Tuesday jumped more than 100% to about $8 billion.

"Corp volume [was] very low," a trader said. "[It] must be the 100-degree weather in New York."

The CDX Series 14 North American investment-grade index was unchanged on Tuesday from Friday's mid bid-asked spread of 122 bps, according to a market source.

In Treasuries, government debt "tracked stocks all day," a source said. "Flows were light."

Stocks ended the day slightly better. The Dow Jones Industrial Average was up 57.14 points, or 0.59%, at 9,743.62.

Yields on benchmark 10-year Treasury yields fell 5 bps to 2.93%. Yields on 30-year bonds were 5 bps tighter at 3.89%.

Duke Energy unit prices bonds

Duke Energy Indiana sold $500 million of 3.75% 10-year series PPP first mortgage bonds (A2/A) to yield Treasuries plus 80 bps, an informed source said.

The yield came at the tight end of guidance in the 85 bps area, a source said.

BNP Paribas Securities Corp., Deutsche Bank Securities Inc., Goldman Sachs & Co. and Morgan Stanley & Co. Inc. were the bookrunners.

Proceeds are being used to repay borrowings under Duke Energy's master credit facility, to fund capital expenditures for an ongoing construction program and for general corporate purposes.

The electric subsidiary of Duke Energy Corp. is based in Plainfield, Ind.

Kroger sells upsized 30-year

Kroger sold an upsized $300 million of 5.4% 30-year senior unsecured bonds by early afternoon at 155 bps over Treasuries, a source close to the deal said.

The size was increased from an initial $250 million after strong demand. The notes priced tighter than talk in the 170 bps area, the source said.

There was about $2.3 billion on the books when it priced.

The notes (Baa2/BBB/BBB) are guaranteed by certain subsidiaries.

Bank of America Merrill Lynch, US Bancorp and Wells Fargo Securities LLC ran the books.

Proceeds are being used for general corporate purposes.

The retail grocery chain is based in Cincinnati.

Primary expecting more deals

It was a strong start to the short week with a handful of new deals pricing and more expected for Wednesday, a source said.

"I think with equities up and nothing horrible [in the headlines], we had a lot of people just decide to go for it," he said.

The end of the previous week was dismal with job reports and more fears over the health of European countries.

"It's looking quiet," a syndicate source said of new deal volume for the week. "We may see some at the end of the week."

"It depends on what happens with the market. It looked good today - not too bad."

The long weekend "throws the week off," he said, adding that a lot of people took time off either before or after the July 4 holiday weekend.

A source at a larger desk said that there were some deals in the pipeline for Wednesday but that pricing was dependent on how the investment-grade market looked at the open.

Hillenbrand sells $150 million

Hillenbrand sold $150 million of 5.5% 10-year senior unsecured notes (Baa3/BBB) by mid-afternoon to yield Treasuries plus 270 bps, a market source said.

J.P. Morgan Securities Inc. and Goldman Sachs & Co. were the bookrunners.

Proceeds are being used to repay a portion of the outstanding balance of a $400 million revolving credit facility and for general corporate purposes.

The issuer is a parent holding company for subsidiary Batesville Services Inc., which provides funeral home services and burial products. It is based in Batesville, Ind.

LaFarge upsizes five-year

LaFarge sold an upsized $550 million of 5.5% five-year senior unsecured notes (Baa3/BBB-) late in the day at Treasuries plus 375 bps, a source close to the deal said.

The Rule 144A notes were priced in line with talk in the 375 bps area. The deal size was increased from $350 million.

Bookrunners were Barclays Capital Inc. and JPMorgan.

The building materials supplier is based in Paris.

Kroger tightens

Kroger sold $300 million of 5.4% bonds due 2040 at Treasuries plus 155 bps. Soon after, the notes tightened on the offer side to 155 bps bid, 147 bps offered, one trader said.

Late in the day, the notes were seen trading at 154 bps bid, 152 bps offered, according to another trader.

Near closing, a trader saw the 30-year bonds at 154 bps bid, 148 bps offered.

Duke Energy firms

Duke Energy Indiana's new notes immediately firmed in the secondary market, traders said.

The company priced $500 million 3.75% mortgage bonds due 2020 to yield Treasuries plus 80 bps.

In early afternoon trading, the notes were quoted at 77 bps bid, 76 bps offered.

Near the closing bell, the notes were seen trading at 78 bps bid, 76 bps offered.

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