PepsiCo, Yum!, Duke Energy among issuers as yields drop; BofA, Goldman CDS widen

By Andrea Heisinger and Cristal Cody

New York, Aug. 22 - Somewhat stable conditions in the high-grade bond market allowed companies to resume pricing paper as yields went down on Monday.

Names tapping the market included PepsiCo, Inc., Yum! Brands Inc., Duke Energy Corp. and Arizona Public Service Co.

PepsiCo had by far the largest deal of the day totaling $1.25 billion in two parts. There was a $500 million tranche of three-year notes and $750 million of 10-year notes. Each was launched and priced tight to guidance.

Fast food chain operator Yum! Brands upsized its 10-year paper sale to $350 million from $300 million.

Duke Energy priced $500 million of 10-year notes in line with talk, and another utility, Arizona Public Service, priced an upsized $300 million of 30-year bonds. The deal size was increased from $250 million.

While the market tone wasn't the best, it was good enough for issuers to sell debt.

"It was OK," a market source said. "This morning we actually saw some green on the screen. It could have been worse - like the Dow closing down 400 points."

The week could be a slow one for new deals as some economic data for new home sales come out. There is also a speech by Federal Reserve Chairman Ben Bernanke on Friday.

"People are wary," a source said. "I think it's going to be quiet."

There are more small sales expected on Tuesday if market conditions hold overnight, syndicate sources said.

Overall trading volume stayed below $10 billion on Monday.

"It was pretty quiet today all around for me," one trader said.

The new issues sold on Monday traded slightly weaker going out on the day, according to traders.

Confidence in investment-grade bonds continued to dip on Monday. The Markit CDX Series 16 North American high-grade index increased to a spread of 127 basis points from 117 bps on Friday and rose 7 bps at the end of last week.

Bank credit default swaps also were wider.

"Bank CDS was tighter by 5 to 10 at the open and then widened throughout the day and, at one point, were 2 to 3 basis points wider," the source said.

Bank of America Corp.'s CDS saw "particular pressure" on Monday.

"Bank of America CDS are out 35 to 45 basis points on the day, and there's particular pressure on their stock," the source noted.

Bank of America's stock fell about 8% on the day on continued lawsuit concerns and after a Jefferies analyst said that the bank may need to raise up to $50 billion.

The Charlotte, N.C.-based bank's Canadian and U.S. high-grade bonds and subordinated debt widened in the previous week also.

Goldman Sachs Group Inc.'s CDS were out about 10 bps on reports that chief executive officer Lloyd Blankfein hired a defense attorney in connection with the Justice Department investigation into the Senate's Permanent Subcommittee on Investigations' report of Goldman's practices.

In other trading, Kinross Gold Corp.'s new $1 billion offering of bonds was mixed as gold prices climbed on Monday, according to sources.

Treasuries rose higher over the day, sending yields up 3 bps to 5 bps on the longer end of the curve. The 10-year note yield rose to 2.11% from 2.06%. The 30-year bond yield increased 3 bps to 3.42%.

PepsiCo prices tight

PepsiCo sold $1.25 billion of senior notes (Aa3/A-/A+) with two maturities, said a source away from the deal.

The $500 million of 0.75% three-year notes priced at a spread of Treasuries plus 57 bps. This was at the low end of guidance in the Treasuries plus 60 bps area.

A second part was $750 million of 3%10-year notes sold at a spread of 97 bps over Treasuries. These notes priced at the tight end of guidance in the 100 bps area.

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

Proceeds are being used for general corporate purposes.

PepsiCo last sold bonds in a $1.75 billion deal in two parts on May 3.

After pricing, the notes due 2021 were seen in the gray market at 97 bps bid, 94 bps offered, a trader said.

Late afternoon, another trader saw the notes due 20 2014 in the secondary market tighter at 55 bps bid. The 10-year notes widened to 99 bps bid, 96 bps offered, the trader said.

The global food, snack and beverage company is based in Purchase, N.Y.

Duke Energy's $500 million

Duke Energy sold $500 million of 3.55% 10-year senior notes (Baa2/BBB+/BBB) at a spread of 145 bps over Treasuries, an informed source said.

The paper was priced in line with talk in the 145 bps area, he said.

BNY Mellon Capital Markets LLC, Citigroup Global Markets Inc., Goldman Sachs & Co. and UBS Securities LLC were the bookrunners.

Proceeds will be used to repay a portion of commercial paper as it matures, funding capital expenditures in unregulated businesses and for general corporate purposes.

Duke Energy's notes traded soon after issuance at 142 bps offered, a trader said. Going out, the notes due 2021 edged wider on the bid side to 146 bps bid, 144 bps offered, a trader at another desk said.

The energy company is based in Charlotte, N.C.

Yum! upsizes 10-years

Yum! Brands priced an upsized $350 million of 3.75% 10-year notes (Baa3/BBB-/BBB) to yield Treasuries plus 170 bps, an informed source said.

The deal size was increased from $300 million. The debt was sold at the tight end of guidance in the 175 bps area, plus or minus 5 bps.

Bookrunners were Citigroup Global Markets Inc., J.P. Morgan Securities LLC and Morgan Stanley & Co. Inc.

Proceeds are being used for general corporate purposes.

Yum! Brands last priced $350 million of 3.875% 10-year debt on Aug. 24, 2010 at Treasuries plus 140 bps.

In secondary trading, a trader quoted the notes at 167 bps offered.

The fast food chain operator is based in Louisville, Ky.

AZ Public Service upsizes

Arizona Public Service sold an upsized $300 million of 5.05% 30-year senior bonds (Baa2/BBB/BBB) to yield Treasuries plus 170 bps, according to an FWP with the Securities and Exchange Commission.

The deal size was increased from $250 million due to the roughly $1.5 billion of demand on the books. The notes were sold at the tight end of guidance in the 175 bps area, plus or minus 5 bps, a source said.

Deutsche Bank Securities Inc., J.P. Morgan Securities LLC, UBS Securities LLC and Wells Fargo Securities LLC were bookrunners.

Proceeds are being used to pay a portion of the $400 million of 6.375% notes due on October 15 at maturity.

The electric subsidiary of Pinnacle West Capital Corp. is based in Phoenix.

Kinross Gold mixed

Canada's Kinross Gold bonds were seen mixed in the secondary market as gold mining stocks climbed, traders said on Monday.

The company priced $1 billion of senior notes (Baa3/BBB-/BBB-) in three tranches on Aug. 16.

The tranche of 3.625% notes due 2016 traded early in the day at 100.15 offered, a trader said. Late afternoon, another trader saw the five-year notes at 280 bps offer. Kinross sold the $250 million tranche at 99.595 to yield 3.714% with a spread of Treasuries plus 270 bps.

The $500 million tranche of 5.125% notes due 2021, which priced at 99.141 to yield 5.236% with a spread of 290 bps over Treasuries, traded early morning at 101.36 offer and later in the day flat at 290 bps offer, the traders said.

Kinross Gold's long bonds also were mixed in trading, higher in the morning at 103.20 offered, a trader said.

The company sold $250 million of the 6.875% bonds due 2041 at 99.181 to yield 6.94% with a spread of 315 bps over Treasuries. The 30-year bonds were quoted wider late afternoon at 330 bps offer.

The mining and gold ore processing company is based in Toronto.

© 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.